<PAGE>

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

                                ______________
                                   FORM 10-K

(Mark One)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
     For the fiscal year ended February 28, 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 0-22154

                            MANUGISTICS GROUP, INC.
            (Exact name of Registrant as specified in its charter)


                 Delaware                                       52-1469385
     (State or other jurisdiction of                        (I.R.S. Employer
     incorporation or organization)                       Identification Number)

2115 East Jefferson Street, Rockville, Maryland                    20852
     (Address of principal executive offices)                    (Zip code)

                                (301) 984-5000
             (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.002
par value per share
                               (Title of Class)
Name of each exchange on which registered: None

Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
                               Yes  X  No ____
                                    -
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

As of June 11, 1999, the aggregate market value of the voting stock held by non-
affiliates of the Registrant was approximately $205 million. As of that date,
the number of shares outstanding of the Registrant's common stock was 27
million, based on information provided by the Registrant's transfer agent.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's definitive Proxy Statement relating to the 1999 Annual
Meeting of Stockholders are incorporated by reference into Part III of this Form
10-K. The Company anticipates that its Proxy Statement will be filed with the
Securities and Exchange Commission within 120 days after the end of the
Company's fiscal year ended February 28, 1999.

_______________________________________________________________________________
<PAGE>

                                    PART I
                                    ------

Item 1.  Business.

Overview

     Manugistics Group, Inc. (the "Company") is a leading provider of solutions
for customer-centric supply chain optimization with the largest number of
clients of any supply chain planning vendor. The Company's solutions are
comprised of software products and related services that enable clients to
improve the efficiency at which products flow within and among companies from
raw materials or parts through manufacturing to delivery of product to the end
customer. The Company's solutions combined with its professional services enable
its clients to create and optimize their supply chains around their customers
and are quick to implement, adapt easily to change, and deliver rapid results.

     With the Company's broad suite of supply chain software products, clients
can make improved operational decisions, resulting in increased revenues,
reduced inventories, improved customer service, improved relationships among
trading partners, greater speed to market, and lower overall costs throughout
the supply chain, with results achievable in as little as eight weeks. The
Company currently has clients in a broad spectrum of industries around the
world. The Company's products are primarily targeted at companies with dynamic
supply chains and, increasingly, at those that desire to take advantage of
emerging e-commerce opportunities.

     The Company's integrated suite of strategic, tactical, and operational
supply chain planning software products addresses the four key operational areas
of supply chain planning: demand planning, supply planning, manufacturing
scheduling, and transportation management and enables collaboration within and
among enterprises. That is, the Company's clients can collaborate with their
suppliers, their customers, and other third parties.

     During fiscal 1999, the Company experienced declines in license fee
revenues and share of the supply chain planning software market compared to
prior years. These declines, and the resulting losses, were caused by, among
other factors, problems with direct sales force execution, new and stronger
competitive forces and other external factors, including the impact on clients
and prospects of the Year 2000 problem and global economic conditions. The
Company's poor financial performance led to the Company's decision to
restructure its business during fiscal 1999 to reduce its operating expenses,
improve its competitiveness, and to attempt to return to profitability. The
Company's restructuring included significant headcount reductions,
reorganization of the Company's senior management team, hiring of a new Chief
Executive Officer, and an increased focus on and increased investments in the
Company's leading initiatives in a concentration on the Company's core business
and key strengths in e-commerce enabled supply chain solutions. The Company
believes that restructuring actions effected in fiscal 1999 will decrease
operating expenses in fiscal 2000 compared with fiscal 1999 and help the Company
achieve sustainable profitability. There can be no assurances that the Company's
restructuring actions and decrease in operating expenses will be sufficient to
offset the Company's decrease in license fee revenues and return the Company to
sustainable profitability.

     The Company's future operating results and financial condition are
dependent upon the Company's ability to successfully develop and market
technologically innovative and competitive products to meet dynamic customer
demand patterns, and are also dependent upon its ability to change marketplace
perceptions of the Company's long term prospects, including the Company's
ability to remain independent.

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There are many potential risks and uncertainties that could affect
the Company's future operating results and financial condition, including
continued competitive pressures in the marketplace and the effect of any
reaction by the Company to such competitive pressures (including pricing actions
by the Company), the Company's ability to successfully implement its strategic
direction and restructuring actions (including reducing its expenditures), the
Company's ability to attract, motivate, and retain employees (including a number
of new executive officers, including the Company's new Chief Executive Officer),
and the effects of significant adverse publicity resulting from the losses
incurred by the Company in fiscal 1999. See Management Discussion and Analysis,
Forward Looking Statements.

     The Company was incorporated in Delaware in 1986 to acquire Manugistics,
Inc. (then known as STSC, Inc.), which was a subsidiary of Continental Telecom
of Atlanta, Georgia and is now the principal operating subsidiary of the
Company. The Company completed its initial public offering of Common Stock in
August 1993 and completed another underwritten offering of its Common Stock in
August 1997.

Background

     Increased competition is forcing leading organizations to increase
efficiencies by reducing costs, increasing customer service and satisfaction,
customizing products, and shortening lead-times and manufacturing time-frames.
In order to build and retain a competitive advantage, these organizations are no
longer operating as separate entities but are collaborating with suppliers,
clients, and third parties to respond to these increased market demands.
Companies now recognize that effective supply chain planning is a competitive
differentiator, and these companies are seeking solutions that can help them
deliver the right product to the right place at the right time at the lowest
deliverable cost, focus on their customer's requirements, demands, and
satisfaction, and collaborate with their suppliers and customers to achieve
greater efficiencies.

     Global manufacturers require tight integration with their customers,
suppliers, and worldwide subsidiaries. This environment demands real-time
decision making and access to information. By sharing information within their
enterprise and with trading partners in their supply chain, organizations ensure
planning is highly coordinated and the needs of customers are met - or exceeded.
Utilizing the Company's customer-centric supply chain optimization approach,
companies can develop more responsive supply chains to assist them in increasing
customer service levels, leveraging customer information to trigger critical
supply chain planning processes, and enable organizations to optimize their
supply chain for effective management of products - from raw materials, through
manufacturing and distribution.

     Manufacturers, distributors, retailers, and transportation providers are
seeking to improve customer service, increase revenues, lower operating costs,
and increase returns on assets and capital through more effective management of
their supply chains. Some of the first companies to recognize the need for
effective supply chain planning were consumer packaged goods and food and
beverage firms, which generally make product to stock in inventory ("make to
stock"). Many of these companies produce their finished goods using process
manufacturing, distribute their products through complex networks, and sell
their products through retail channels. Suppliers to these consumer-oriented
process manufacturers, such as chemical and pulp and paper companies, that
generally use process manufacturing and sell to industrial customers, have also
been significantly affected by the changed business environment.

     Companies in the apparel and consumer electronics industries, among others,
have also been forced to contend with more difficult business conditions and
have been particularly

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affected by shorter product life cycles and the associated difficulty of
forecasting product demand. Such companies manufacture products for consumers in
discrete or high-volume repetitive manufacturing environments, and generally
make or assemble their products upon receipt of a customer order ("make to
order"). These companies, as well as discrete manufacturers that sell to
industrial customers, have begun to recognize that they can provide better
service to their customers, achieve lower operating costs, and increase their
return on assets through the effective management of their supply chains.

     To make it possible for companies to consider their customers, whether they
are other manufacturers or end consumers, the central focus of their business,
the Company's solutions address the business processes that enable responsive
decision making. These business processes are uniquely focused on managing
decisions, events, and plans with the customer as the focus. These processes
cover the entire spectrum of the supply chain; from the processes of design,
buy, and make to the processes of move, store, market, and sell, and allow
companies to leverage the Internet to collaborate, monitor, and measure these
business processes over time. These business processes help ensure the efficient
organizational deployment of customer-centric supply chain optimization.

Strategy

     In the fourth quarter of fiscal year 1999, the Company refocused its
business strategy in response to changing market conditions and the Company's
poor financial performance during fiscal 1999. In anticipation of the continued
focus by the Company's clients and prospects on issues related to Year 2000
compliance, and in response to their decreased spending on enterprise software
application packages, the Company set the return to profitability as its primary
objective. To accomplish this, management reorganized the Company to improve
execution and streamlined the business to focus on core strengths, while
continuing to deliver rapid results to its existing and prospective client base.

     As previously announced, the Company conducted preliminary discussions with
other companies concerning a potential business combination in the fourth
quarter of fiscal 1999. These discussions ultimately terminated. After careful
evaluation, the Company's management team restructured the organization to move
forward as an independent software vendor. Management reorganized the Company to
focus on its core business, expand the product footprint to support both the
expansion of supply chains to e-chains and interface and integration
technologies, and broaden its distribution channels.

     Reorganize the Company: new senior management. To facilitate its key
objective of a return to profitability, the Company restructured its operations
and reduced operating expenses. In the fourth quarter of fiscal 1999, the
Company announced a corporate-wide restructuring, including a reduction in the
Company's workforce by 30%, or 400 employees and the consolidation of some of
its regional operations in North America.

     The Company also made changes to its senior management team, including the
hiring of a new Chief Executive Officer, Gregory J. Owens, to bring additional
management depth and leadership to the organization. Mr. Owens was most recently
the Global Managing Partner of the Andersen Consulting Supply Chain Management
Practice, an organization that generated $1.4 billion in revenues during 1998
and employed approximately 7,000 people. William M. Gibson is continuing as
Chairman of the Company. See "Forward Looking Statements."

     Concentrate on core business. The Company is employing a strategy of
concentrating on its core business and key strengths. The Company is now focused
on providing industry-specific, extensive supply chain solutions to companies
with dynamic supply chains. Dynamic supply

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chains include any number of the following characteristics: multiple channels,
short product life cycles, lengthy product development times, complex
distribution networks, a variety of customers seeking new ways of doing
business, and significant interaction with third parties such as manufacturers
and logistics providers.

     Examples of customer-driven industries include: agricultural products,
apparel, footwear, textiles, automotive, consumer products, consumer durables,
electronics, food and beverage and over-the-counter pharmaceuticals. In
addition, companies in other industry segments have customer-driven components
that the Company's supply chain planning products can address to increase
customer satisfaction and profitability.

     Expand product footprint with e-commerce capabilities and interface and
integration technology. The Company's technology strategy includes offering
products based on the Company's unique set of software products developed
specifically to support the business processes involved in collaborative supply
chain planning and execution via the Internet, which can provide customers with
highly accurate models of their supply chains and superior flexibility,
scalability, and performance. The Company's solutions enable collaboration with
trading partners to share product designs, procurement plans, demand forecasts,
manufacturing schedules, distribution activities, and transportation movements.
This development of joint business plans and the collaborative execution of
those plans will tighten the links in the supply chain, creating an e-chain that
will allow almost real-time response to ever-changing market conditions.

     The Company's applications incorporate a variety of advanced decision
sciences, including constraint-based optimization, "meta-heuristics," mixed
integer programming and linear programming, which provide customers with the
most appropriate techniques to enable decision support solutions for the new
digital economy. The Company's technology provides state-of-the-art "look and
feel" and navigation capabilities to enhance user productivity as well as
support visualization of the supply chain. The Company's leading integration
technology enables seamless interchange among the Company's applications and a
company's other core systems.

     The Company offers products for distributed systems which enable customers
to use the Company's supply chain planning software with various combinations of
hardware systems, operating environments, complementary software and databases.
Operating systems such as UNIX enable customers to take advantage of
portability, scalability, and interoperability of operating environments.
Distributed computing, such as that associated with client/server architectures,
moves the Company's decision-making capabilities closer to the user by providing
a distributed user interface, distributed processing (rather than more
centralized processing) and distributed database access. The Company also
utilizes Java-based technology to leverage the ubiquitous nature of the Internet
to add users who can simply access the solution via a standard web browser.

     The Company's products incorporate standards-based technologies, which
provide a flexible foundation and leverage the technology investments of
customers. The Company's use of advanced technology for product development
enables it to develop new software program code with modular components, which
permits and encourages developers to re-use these components and improves
quality while shortening the time required to develop or enhance products.

     The Company is expanding its Open Application IntegrationTM strategy. Open
Application Integration facilitates the use of the Company's supply chain
solutions as a planning backbone to enable global and local processes, events,
and decisions. It includes pre-configured

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plug-ins that integrate to complementary business systems such as enterprise
resource planning ("ERP"), legacy transaction systems, warehouse management
systems ("WMS"), manufacturing execution systems ("MES"), and external data
sources such as product catalogs and point-of-sale information which reduce the
time, cost, and risk associated with implementing, integrating, and maintaining
a best-of-breed solution.

     New capabilities were introduced in Manugistics NetWORKSTM products in
fiscal 1999 which allow companies to collaborate, create and maintain joint
business plans, and monitor the execution of those plans via the Internet.
Management believes that as the Internet continues to grow as a key medium for
business transactions, companies will increasingly focus on how to utilize the
Internet to facilitate e-commerce transactions.  Manugistics NetWORKS products
have gained an early lead in e-commerce that the Company intends to leverage to
deliver the next generation of supply chain solutions for intra-enterprise
collaboration; dealer, distributor, and customer collaboration; supplier
collaboration; and transportation collaboration.  The Company continues to
invest and increase its focus in product development in the area of e-commerce
and believes that this will be a strong growth opportunity in the marketplace.
See "Forward Looking Statements."

     Broadening the Company's distribution channels. The Company intends to
continue to increase the number of strategic alliances with world-class
consulting firms such as Andersen Consulting, Inc.("Andersen Consulting"),
Answer Think Consulting, Computer Sciences Corporation ("CSC"), Ernst & Young
LLP ("E&Y"), IBM Consulting ("IBM"), KPMG Peat Marwick LLP ("KPMG"), and
PricewaterhouseCoopers LLP ("PWC").  The Company believes that, together with
its consulting partners, it provides the Company's clients with a broad range of
supply chain expertise.

     The Company unveiled its Midrange Affiliate Program in fiscal 1999.  The
program focuses on delivering the Company's supply chain solutions and services
to midrange companies with annual revenues of less than $500 million through a
network of affiliate companies that will market, license, implement and support
the Company's' solutions. As of February 28, 1999, two companies, AnswerThink
Consulting Group and Janis Group, Inc. ("JGI"), had joined this affiliate
network.

Supply Chain Solutions

Applications:

     The Company's newest generation of proven supply chain optimization
solutions enables businesses to work in concert with their trading partners via
the Internet, transforming their supply chain to an e-chain and providing a
customer-centric approach to business. The Company's software products assist
customers in anticipating client needs and orchestrating actions, both within
and across enterprises to meet those needs and to maximize client satisfaction.
The Company's solutions are designed to collaborate, optimize, measure, and
analyze across each of the key supply chain business process areas - design,
buy, make, store, move, market, and sell. The Company's supply chain planning
software provides strategic, tactical, and operational supply chain planning
products that include:

     Network Design and Optimization. Network Design and Optimization ("ND&O")
enables companies to quickly and easily make optimal supply chain network design
and policy decisions and seamlessly integrate these decisions into operational
and tactical planning processes such as network-wide capacity, production,
inventory, transportation, and distribution. By modeling end-to-end supply chain
implications, ND&O determines the most profitable supply chain strategy,

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including optimal inventory levels, appropriate product mix, optimal production,
storage, and distribution locations, optimal lane volumes, and appropriate
seasonal pre-builds.

     Constraint-Based Master Planning. Constraint-Based Master Planning ("CBMP")
acts as a supply chain command center, simultaneously optimizing the use of
constrained resources to improve customer service and profit while reducing
asset investment. CBMP provides simultaneous optimization of materials,
capacity, inventory, transportation, and distribution constraints across multi-
site manufacturing, distribution, and supplier networks.

     Demand Management. Demand Management helps companies accurately forecast
future customer demand with a high degree of accuracy, alerting a company to
potential supply problems and finding patterns undetected by traditional
forecasting solutions. By combining advanced forecasting techniques with real-
time collaboration via the Internet, Demand Management enables supply chains to
interact and to plan demand fulfillment strategies with direct input from the
customer.

     Supply Planning. The tactical level functionality in Supply Planning
facilitates effective management of production while simultaneously considering
constraints such as resource capacity, availability of raw materials, inflow and
outflow (throughput) for facilities and transportation, and availability of
components and labor. Supply Planning enables managers to review planned
manufacturing and replenishment activities at all facilities throughout the
supply chain network for flexible time horizons, and allows them to analyze the
ability of their companies to meet demand and supply requirements and customer
service goals given aggregate capacity and materials constraints.

     Vendor Managed Inventory/Continuous Replenishment PlanningTM. Vendor
Managed Inventory/Continuous Replenishment Planning ("VMI/CRP") gives visibility
into demand at the trading partner level - often where the consumer or purchaser
is found - to improve the flow of products, eliminate inefficiencies, and lower
costs. VMI/CRP allows trading partners to cooperate and share information
throughout the replenishment planning process to move product more efficiently.
Collaborative VMI/CRP provides the capability to extend traditional VMI/CRP
relationships by collecting input from trading partners via the Internet.

     Replenishment Planning. Replenishment Planning orchestrates the time-phased
storage and flow of supply to match demand, giving companies the end-to-end
visibility to minimize inventory and reduce logistics costs while maximizing
customer service. Replenishment Planning ensures customer requirements are met
despite unanticipated occurrences through the use of user-controlled allocation
strategies and minimizes lost revenue. These replenishment plans can be shared
with trading partners such as distributors or customers on a real-time basis via
the Internet.

     Real-Time ATP+. Real-Time ATP+ enables accurate, reliable, real-time
promises of, and commitments for, delivery of products by simultaneously
performing availability checks of inventory, production, materials,
manufacturing scheduling, distribution, and transportation - then immediately
allocating appropriate resources. This real-time response to customer inquiries
is essential to conducting e-commerce in a profitable manner. If a request can't
be satisfied, Real-Time ATP+ automatically evaluates substitution and
configuration alternatives based upon user-determined rules.

     Transportation Management. Transportation Management provides the ability
to simultaneously optimize transportation plans and execute all transportation
moves, inbound, outbound, and inter-company, including freight payment,
tracking, and reporting, and build feasible, cost effective consolidated loads
that meet customer service and business operating

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requirements and minimize enterprise-wide transportation costs. The optimized
transportation plans can then be automatically shared with carriers via the
Internet.

     Manufacturing Planning & Scheduling. Manufacturing Planning & Scheduling
("MPS") enables single- and multi-site planning, detailed scheduling, and real-
time communication with the plant floor to deliver simultaneous optimization of
constraints and improved customer service. MPS is seamlessly integrated with
Constraint-Based Master Planning for enterprise-wide planning. These optimized
schedules can be shared with contract manufacturers via the Internet.

     Purchase Planning. Purchase Planning cuts purchasing and expediting costs
by optimizing purchase planning decisions and increases customer service through
real-time supplier connectivity via the Internet. Purchase Planning enables
manufacturers and suppliers to share schedule projections to help ensure that
suppliers are able to meet the scheduled material requirements.

     Manugistics NetWORKS. Manugistics NetWORKS ("NetWORKS") provides a
business-to-business, electronic commerce solution that enables companies to use
the Internet to collaboratively create joint business plans, monitor the
execution of those plans, and measure their success, ultimately converting their
supply chain into an e-chain. By sharing information with the enterprise and
with trading partners via the Internet, customers enjoy real-time response to
dynamic market conditions which results in increased sales and market share
growth, while lowering supply chain costs. NetWORKS allows the user to tailor
business processes to meet the needs of each trading partner, including
customers, retailers, distributors, carriers, or suppliers. Just as the
Company's other supply chain planning products immediately alert planners within
an enterprise of changes along the supply chain, the Supply Chain Broadcast
feature of NetWORKS immediately alerts trading partners of changes, enabling
them to evaluate and incorporate the effects of the changes and to synchronize
their activities accordingly.

     Open Application Integration. The Company's Open Application IntegrationTM
("OAI") application enables the integration of the Company's supply chain
solutions with third-party applications, such as ERP, WMS, MES, legacy systems,
and data sources, such as data warehouses. OAI can reduce the risk, time, and
cost of connecting dynamic, responsive supply chains by providing pre-
configured, adaptable integrations to third-party applications that are real-
time, business-process based. The capability of OAI to connect the Company to
any external application enables companies to assemble unique portfolios of
applications based on their specific business needs. Integrations are visualized
through a graphical user interface that can make integrations easier and faster
to create and customize without the need to develop custom interface
programming. The OAI application utilizes an industry-leading enterprise
application integration product as the integration engine enabling companies to
use one tool to support their corporate integration needs.

     STATGRAPHICS Software. Additionally, the Company markets and supports
STATGRAPHICS, a software application containing a comprehensive set of
statistical tools to control, manage, and improve the quality of production
processes in manufacturing companies. STATGRAPHICS utilizes statistical quality
control and design of experiments to implement quality management in individual
locations throughout an enterprise or plant. STATGRAPHICS continues to be
supported with the appropriate resources allocated to keep the business
competitive in the market it serves.

Global Consulting Services:

     A key element of the Company's business strategy is to provide clients with
comprehensive solutions to their supply chain planning problems by combining
software with

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professional services that enable clients to derive the maximum benefit from the
Company's supply chain products. In order to achieve the benefits of the
Company's supply chain planning solution, a client will typically make many
changes to its processes and overall operations, including its planning
functions, while implementing the Company's software. To assist clients in
making these changes, the Company offers a wide range of product-related
services, including helping companies develop their supply chain to gain the
greatest competitive advantage, business operations consulting, change
management consulting, end-user and system administrator education, and
training. These services help clients re-engineer their operations to take
advantage of the Company's software and of effective supply chain planning.

     These product-related services generally are provided separately from the
Company's software in the Company's software license agreement and are provided
on a time and materials basis. The Company's product-related services group
consisted of 245 employees as of February 28, 1999.

Client Support:

     Another element of the Company's comprehensive solution is to provide on-
going support to existing clients. Substantially all of the Company's supply
chain planning clients enter into annual product maintenance agreements
entitling them to receive product support, including access to a hotline and an
electronic bulletin board, and to receive product revisions and enhancements.
The Company also uses its client support function to collect information to
assist in focusing future product development efforts and in identifying market
demand.

     As of February 28, 1999, the Company's client support and maintenance staff
consisted of 52 employees.

Product Development:

     The Company's product development efforts are directed toward the
development of new complementary products; the enhancement of the capabilities
of existing products; expansion of current e-commerce capabilities; enhancements
for use in foreign countries and the development of products tailored to the
particular requirements of particular industries and foreign language
translations. To date, most of the Company's supply chain products have been
developed by its internal staff and occasionally supplemented by product
acquisitions. Product documentation is generally created internally.

     In developing new products or enhancements, the Company works closely with
current and prospective clients, as well as with other industry leaders, to
address client needs and requirements. The Company believes that these
collaborative efforts will lead to improved software functionality and will
result in superior products likely to have greater market demand. The Company
maintains committees of users and developers for its products. Among other
things, these committees define and rank issues associated with products and
discuss product enhancement priorities and directions.

     Since its inception, the Company has made substantial investments in
product development. The Company believes that getting products to market
quickly, without compromising quality, is critical to the success of these
products. The Company is continuing to make significant product development
expenditures that it believes are necessary for it to rapidly deliver new
product features and functions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

     The Company conducts a Product Launch Program for new applications and
major enhancements, which allows clients to review design specifications and
prototypes and

                                       9
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participate in product testing. The Company has also established channels for
client feedback, which include periodic surveys and focus groups. In addition,
the Company's product development staff works closely with the Company's
marketing, sales, support, and services groups to develop supply chain
planning software products that meet the needs of its current and prospective
clients.

     As of February 28, 1999, the Company's product development staff consisted
of 247 employees.

Clients

     The Company's supply chain planning software has been licensed by large
organizations in the process manufacturing industries, such as the consumer
packaged goods, food and beverage, chemicals, paper, and pharmaceuticals
industries, and by clients in the discrete and high-volume repetitive
industries, including the apparel, consumer durables, electronics/high
technology, and motor vehicles and parts industries. The Company has licensed
various combinations of its supply chain planning software products to clients
worldwide. The following clients are representative of the Company's client base
in terms of their size and the magnitude of revenues generated by their license
agreements with the Company. During fiscal 1999, all of these clients have
either licensed software products from the Company or its distributors, or
purchased maintenance, consulting, or other services, or both, from the Company.
See "Sales and Marketing."

                                       10
<PAGE>

<TABLE>
<CAPTION>
<S>                                                        <C>
Consumer Packaged Goods                                    Chemicals and Petrochemicals
Chelsea Building Products                                  BASF Corporation
Eveready Battery Co., Inc.                                 Dow Chemical Company, Limited
General Electric Company                                   E.I. du Pont de Nemours and Company
The Gillette Company                                       Exxon Company, International
Lever Brothers Company                                     Mobil Oil Corporation
The Procter & Gamble Company                               The Rohm & Haas Company
Revlon Consumer Products Corporation
                                                           Consumer Electronics/High Technology
Food & Beverage                                            Analog Devices, Inc.
AmeriServe Food Distribution, Inc.                         Carolina Circuits
Coors Brewing Company                                      Condumex, Inc.
Frito-Lay, Inc.                                            Hewlett-Packard Company
McDonald's  Corporation                                    IBM Corporation
Nabisco, Inc.                                              Lexmark International, Inc.
Ocean Spray Cranberries, Inc.                              Philips Consumer Electronics Company
Perdue Farms Inc.
Starbucks Corporation                                      Motor Vehicles and Parts
                                                           Automotive Products plc
Retail Drug/Mass Merchandise/Specialty                     BMW AG
Retail                                                     Deere & Co.
CVS, Inc.                                                  Harley-Davidson, Inc.
Dayton Hudson Corporation                                  Mitsubishi Motor Sales of America
Kmart Corporation                                          PPG Industries, Inc.
OfficeMax, Inc.                                            Tenneco Automotive-Monroe Auto Equipment
Rite Aid Corporation
Staples, Inc.                                              Paper
Toys `R' Us, Inc.                                          Fort James Corporation
Wal-Mart Stores, Inc.                                      Mead Corporation
                                                           Rayonier
Apparel                                                    Sweetheart Cup Company, Inc.
Coteminas
Kayser-Roth Corporation                                    Grocery
Levi Strauss & Co.                                         Food Lion, Inc.
The Limited                                                The Kroger Co.
Russell Corporation                                        Richfood, Inc.
The Timberland Company                                     Safeway Stores, Inc.
                                                           Winn-Dixie Stores, Inc.
</TABLE>

     The Company provides its software products to clients under a non-
exclusive, non-transferable license agreement. The Company does not sell or
transfer title of its products to its clients in order to protect its
intellectual property rights. Under the Company's current standard form license
agreement, licensed software may be used solely for the clients internal
operations.

Sales and Marketing

     The Company's supply chain planning sales operation for North and South
America is headquartered at the Company's offices in Rockville, Maryland and
includes field sales personnel in the Atlanta, Philadelphia, Hartford,
Charlotte, Chicago, Columbus, Dallas, Denver, Detroit, Los Altos, Los Angeles,
Ottawa, San Francisco, Sao Paulo (Brazil), and Toronto

                                       11
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metropolitan areas. The Company's direct sales organization focuses on licensing
supply chain planning software to large, multi-national companies, as well as
mid-sized companies with significant supply chain issues.

     The Company markets its products in regions outside of North and South
America primarily through subsidiaries. The Company's British, German, French,
Belgian, and Dutch subsidiaries, located in Bracknell, England; Ratingen,
Germany; Paris, France; Brussels, Belgium; and Utrecht, The Netherlands,
respectively, provide direct sales, services, support, or both, of supply chain
planning software, primarily to customers located in continental Europe and
the United Kingdom. In fiscal 1998, the Company established a subsidiary in
Tokyo, Japan to license and support its software in Japan. The Company also has
a subsidiary in Australia for sales and support to customers in the Pacific Rim.
The Company adapts its software for use in international markets by addressing
different languages, different standards of weights and measures, and other
operational considerations. In fiscal 1999, approximately 30% of the Company's
total licensing and services revenues were attributable to sales outside the
United States and Canada. See Note 11 of Notes to Consolidated Financial
Statements.

     The Company also uses indirect sales channels, such as complementary
software vendors, third-party alliances and distributorships. See "Alliances and
Partnering." Using these channels, the Company seeks to increase the market
penetration of its supply chain planning software products by collaborating on
joint marketing and sales activities. These relationships enhance the Company's
sales resources into target markets and expand its expertise to bring optimum
supply chain solutions to prospects and clients.

     The Company supports its supply chain planning sales activities by
conducting a variety of marketing programs, including an annual industry supply
chain event called Working as One, client "steering committees," and appearances
at industry conferences such as those organized by the American Production and
Inventory Control Specialists ("APICS") organization, Supply Chain World, Retail
Systems, and Auto-Tech. The Company also participates in product demonstration
seminars and client conferences hosted by complementary software vendors. In
addition, the Company conducts lead-generation programs including advertising,
direct mail, public relations, seminars, telemarketing, and ongoing client
communication programs.

     The Company had 113 employees engaged in sales activities, 40 employees
engaged in marketing activities, and 109 employees engaged in business
development consulting activities as of February 28, 1999.

     The Company licenses its STATGRAPHICS product in the U.S. and in other
countries through independent distributors, national resellers, and local
dealers.

Alliances and Partnering

     The Company has established business alliances or partnerships with leading
software companies, consulting firms, affiliate resellers, and other
complementary vendors. The Company has entered into joint marketing agreements
with Glovia International, L.L.C., J. D. Edwards, Oracle Corporation, and System
Software Associates, as well as a number of other prominent software companies,
which generally provide that the Company and these companies will conduct joint
marketing activities. In support of these joint efforts, the Company's OAI
framework is being enhanced to integrate the Company's supply chain planning
software with the software applications of the companies mentioned above and
other ERP, warehouse management, manufacturing execution, customer relationship
management, configuration, and other related application vendors.

                                       12
<PAGE>

     The Company continues to develop relationships with leading consulting
firms in order to provide marketing leverage to the Company's own marketing
efforts. For example, Andersen Consulting displays the Company's supply chain
planning software at its Centers of Excellence in Chicago, Atlanta, and
London. Similarly, the Company works closely with CSC, E&Y, IBM, KPMG, and PWC.
The Company's' products are installed in a CSC solution center in Cleveland,
Ohio, at an IBM demonstration facility in Lexington, Kentucky, and solution
centers operated by E&Y, and PWC, and at KPMG's solution center in Tysons
Corner, Virginia. The Company also has formal relationships with many national
and major regional consulting firms including Arthur Andersen LLP, Computer
Associates Global Professional Services, Clarkston-Potomac, and others. In
addition to formal programs, the Company cooperates with other professional
services firms informally on a client-by-client basis.

License Agreements and Pricing

     Software products license revenues consist principally of fees generated
from licenses of software products. In consideration of the payment of license
fees, the Company generally grants nonexclusive, nontransferable, perpetual
licenses which are primarily business unit and user specific. License fee
arrangements vary depending upon the type of software product being licensed and
the computer environment. License fees are based primarily on which products are
licensed and on the number of users or locations. Licensing dollar amounts for
supply chain planning software products range up to several million dollars
for a larger scope of supply chain initiatives.

     Clients may obtain support services and maintenance for an annual fee,
depending on the level of support and the size of the license fee. The support
and maintenance fee is generally billed annually and is subject to changes in
solution support list prices. The Company also provides pre-installation
assistance, systems administration, training, and other product-related
services, generally on a time and materials basis. This allows the customer to
determine the level of support or services appropriate for its needs.

Competition

     The market for supply chain planning software is highly competitive. Other
applications software vendors, including companies targeting mainframe or mid-
range clients, and certain professional services organizations, including such
vendors as i2 Technologies, Inc., Logility, Inc., and Numetrix, Inc. offer
products that are directly competitive with some of the software applications
marketed by the Company. In addition, certain ERP vendors, most of which are
substantially larger than the Company, have acquired or developed supply chain
planning software companies, products, or functionality, or have announced
intentions to develop and sell supply chain planning solutions, including such
vendors as Baan Company N.V., PeopleSoft, Inc., and SAP AG.

     The principal competitive factors in the supply chain planning software
markets served by the Company include product functionality and quality, product
suite integration, ease of use, customer service and satisfaction, ability to
provide customer references, product support, product-related services,
compliance with industry standards and requirements, ability of solution to
generate business benefits, vendor reputation, and, in international markets,
availability in foreign languages. The Company believes that its principal
competitive advantages are its comprehensive, integrated solution, its
significant list of referenceable clients, its substantial investment in product
development, the strength of its solutions to generate business benefits, the
speed at which the

                                       13
<PAGE>

solution generates returns or is implemented, its client support, and its
extensive knowledge of supply chain planning.

Proprietary Rights and Licenses

     The Company regards its software as proprietary and relies on a combination
of trade secret, copyright, and trademark laws; license agreements;
confidentiality agreements with its employees; and nondisclosure and other
contractual requirements imposed on its clients, consulting partners, and others
to protect proprietary rights in its products. The Company distributes its
supply chain planning software under software license agreements, which
typically grant clients nonexclusive, nontransferable licenses to the Company's
products and have perpetual terms unless terminated for breach. Under these
license agreements, the Company retains all rights to market its products. Use
of the licensed software is usually restricted to the customer's internal
operations and for designated users. Use is subject to terms and conditions
prohibiting unauthorized reproduction or transfer of the software. The Company
also seeks to protect the source code of its software as a trade secret and as
an unpublished, copyrighted work.

Employees

     As of February 28, 1999, the Company had 912 full-time regular employees.
None of the Company's employees are represented by a labor union. The Company
has experienced no work stoppages and believes that its employee relations are
generally good.

                                       14
<PAGE>

Item 2.  Properties.

     The Company's principal sales, marketing, product development, support, and
administrative facilities are located in Rockville, Maryland, where the Company
leases approximately 122,000 square feet of office space under a lease agreement
which expires on April 30, 2002. The Company leases approximately 52,000 square
feet of additional office space under a lease agreement that expires on July 31,
2000. This space is located in a building a few miles from the Company's
headquarter facilities. The Company leases approximately 41,000 square feet of
additional office space under lease agreements expiring on or before October 31,
1999. The Company anticipates that in light of the recent reduction in workforce
in connection with the restructuring, it will not be renewing the leases. This
space is located in a complex adjacent to the Company's headquarters facilities.
Finally, the Company leases office space for its 11 sales, service, and product
development offices in the United States and its subsidiaries in North America,
South America, Europe, and Asia/Pacific. As part of the corporate-wide
restructuring of the organization which took place in the fourth quarter of
fiscal 1999, the Company consolidated several of its offices.

     In order to consolidate the Company's three facilities located in the
Rockville, Maryland area, the Company entered into an agreement effective as of
March 26, 1998 ("Site Agreement") with a commercial real estate developer,
Boston Properties, to lease a new office building of approximately 300,000
square feet to be built at a site near its current headquarters in Rockville,
Maryland. The Company anticipated taking occupancy of the new facility in the
spring of the year 2000. Pursuant to the Site Agreement, Boston Properties
commenced development of the site. Due to the Company's operating losses in
fiscal 1999, and its restructuring, including a significant reduction in
employees, the Company's need for expansion space has been greatly reduced. The
Site Agreement does not address early termination due to reduced need. The
Company has been in negotiations with Boston Properties to effect a mutual
termination of the Site Agreement. In management's opinion, any liability that
may ultimately result from the resolution of this matter in excess of amounts
provided would not be likely to have a material adverse effect on the financial
position of the Company.


                                       15
<PAGE>

Item 3.  Legal Proceedings.

     In the ordinary course of business, the Company is a party to legal
proceedings and claims. In addition, from time to time, the Company may have
contractual disagreements with certain clients concerning the Company's products
and services. The Company has established accruals related to such matters that
are probable and reasonably estimable. In management's opinion, any liability
that may ultimately result from the resolution of these matters in excess of
amounts provided would not be likely to have a material adverse effect on the
financial position of the Company.

     On March 7, 1997, the Company, as part of the acquisition of certain assets
of Information Resources, Inc. ("IRI"), entered into several agreements with
IRI, including a Data Marketing and Guaranteed Revenue Agreement ("Agreement")
and an Asset Purchase Agreement ("Purchase Agreement"). The Agreement set forth
the obligations of the parties with regard to revenues to be paid to IRI from
the sale by the Company of specified products to be provided by IRI. Under the
terms of the Agreement, the Company guaranteed revenue to IRI in a total amount
of $16.5 million over a period of years following execution of the Agreement by
way of three separate revenue streams. As part of the $16.5 million commitment,
the Company agreed to guarantee revenues to IRI in a total amount of $12 million
through three separate payments over an initial three (3) year period from
execution of the agreement ("First Revenue Stream").

     In discussions with IRI with respect to the Company's refusal to make
payments of the First Revenue Stream, the Company asserted that its ability to
generate revenues from the sale of IRI's products (from which such First Revenue
Stream payments were to be derived), was directly attributable to the fact that
such products were impaired and were therefore not saleable. Under the terms of
the Agreement, impairment of the IRI products would constitute grounds for
restructuring or modifying the payment obligations with regard to the First
Revenue Stream, or both. In such discussions, IRI disputed the Company's
characterization of its products as impaired. IRI disagreed, stating that no
impairment existed, or if one did, that any impairment had been corrected. As
previously reported by the Company, the parties discussed their disagreement
over the impairment issue until IRI filed a complaint in the Circuit Court of
Cook County, Illinois on January 15, 1999. The complaint alleges breach of the
Agreement and seeks damages in an amount in excess of $11.9 million, for the
Company's alleged failure or anticipatory failure to make guaranteed payments in
the amount of $12 million. The complaint also alleges a breach of a separate
Non-Competition and Non-Solicitation Agreement, executed at the same time as the
Agreement, seeking damages in an amount in excess of $100,000. The Company filed
a Motion to Stay Proceedings and Compel Arbitration, which was granted as to the
claim under the Agreement and denied as to the claim under the Non-Competition
and Non-Solicitation Agreement. Arbitration proceedings have not yet commenced;
the civil action is in the early stages of discovery. It is not possible at this
time to predict the outcome of the arbitration or litigation or the amount or
nature of any loss. If the litigation is not resolved satisfactorily to the
Company, the Company's financial condition and results of operations could be
materially adversely affected.

  The Company received notice from IRI of the dismissal of the lawsuit filed
against IRI by Think Systems Corporation on April 2, 1999. Such dismissal was a
condition precedent to the obligation of Manugistics, Inc. to proceed to a
Second Closing pursuant to the Purchase Agreement. IRI has requested that the
parties proceed to such Second Closing which relates to the transfer of
ownership of certain assets from IRI to Manugistics Services, Inc. Further,
under the Agreement, the dismissal of the Think Systems lawsuit triggers the
commencement of a second revenue stream under the Agreement. The second revenue
stream represents a total guaranteed revenue of $1.75 million for the first and
second year following the Second Closing and $2.25 million for the third revenue
year following the second closing.

                                       16
<PAGE>

     As previously reported by the Company in its Current Report of Form 8-K
dated June 18, 1998, a number of lawsuits were filed in various Federal District
Courts alleging disclosure violations under the federal securities laws against
the Company, its Chairman and then Chief Executive Officer, and its Chief
Financial Officer, arising from alleged omissions and misrepresentations by the
Company and these two individuals regarding the Company's business, operations,
and financial condition. Each complaint seeks class action status on behalf of
purchasers of the Company's common stock during certain specified periods and
seeks unspecified monetary damages. The actions have been consolidated in the
District of Maryland and an amended consolidated complaint filed by the
plaintiffs. On or about May 6, 1999, the Company moved to dismiss the
consolidated complaint. Plaintiffs have not yet filed an opposition motion to
the Company's motion to dismiss. It is not possible at this time to predict the
outcome of the litigation or the amount or nature of any loss.

Item 4.  Submission of Matters to a Vote of Security Holders.

     On December 4, 1998, the Company held a Special Meeting of Shareholders. At
the meeting, the shareholders approved (a) amendments to the Company's Employee
Stock Option Plan (the "ESOP") to specifically permit, subject to prior
shareholder approval, the surrender of options held thereunder by employees who
are not executive officers or directors of the Company and the reissuance of
such options at a lower exercise price; and (b) the making of an offer to
reprice certain options outstanding under the ESOP (as so amended) in accordance
with the terms specified in the Proxy Statement (with 13,309,187 affirmative
votes, 1,575,206 against, and 68,124 abstentions).

Item 4A.  Executive Officers of the Registrant.

     The name, age, and position held by each of the executive officers of the
Company or Manugistics, Inc., its principal operating subsidiary, are as
follows:

<TABLE>
<CAPTION>
Name                          Age       Position
----                          ---       --------
<S>                           <C>       <C>
Gregory J. Owens.........      39       Chief Executive Officer and President

William M. Gibson........      54       Chairman of
                                        the Board of Directors

Mary Lou Fox.............      56       Senior Vice President, Consulting Services

Jeffrey L. Holmes........      49       Senior Vice President, North American Sales
                                        Operations

Eric J. Hughey...........      48       Senior Vice President, Supply Chain Products

Peter Q. Repetti.........      37       Senior Vice President and Chief Financial Officer
</TABLE>

                                       17
<PAGE>

     Mr. Owens became Chief Executive Officer and President of the Company in
April 1999. From 1993 to 1999, Mr. Owens served as the Global Managing Partner
for the Andersen Consulting Supply Chain Practice, the largest supply chain
consulting practice with over $1.4 billion in revenue in 1998. Mr. Owens joined
Andersen Consulting in 1990. A copy of Mr. Owens' Employment Agreement dated
April 25, 1999, with the Company appears as Exhibit 10.28 to this Annual Report
of Form 10-K.

     Mr. Gibson has served as Chairman of the Board of the Company since its
formation in 1986. From 1986 until April 1999, Mr. Gibson also served as Chief
Executive Officer and President of the Company. From 1983 until 1986, when it
was purchased by the Company, Mr. Gibson served as Chief Executive Officer,
President, and Chairman of the Board of STSC, Inc. (now Manugistics, Inc.). He
joined STSC, Inc. as Executive Vice President and Chief Operating Officer in
1982.

     Ms. Fox has served as Senior Vice President, Consulting Services since
January 1999. From September 1998 to January 1999, she served as Senior Vice
President, Supply Chain Products. From November 1997 to September 1998, she
served as Senior Vice President, Product and Industry Marketing. From April 1993
to November 1997, she served as Senior Vice President, Professional Services
Division. She joined STSC, Inc. in 1982 as a Senior Systems Analyst and
subsequently served in various technical and professional services roles and as
Vice President, Professional Services, from March 1990 through March 1993.

     Mr. Holmes has served as Senior Vice President, North American Sales
Operations since April 1999. From October 1998 to April 1999, he served as Vice
President, Industry Solutions. From January 1997 to October 1998, he served as
Vice President, Consumer Products Industry. He joined the Company in October
1996 as Director of Marketing, Consumer Products. From 1995 to 1996, Mr. Holmes
served as Logistics and Commercial Director for Mars Incorporated. From 1993 to
1995, Mr. Holmes served as Logistics Director for Mars, L.L.C. in Russia.

     Mr. Hughey has served as Senior Vice President, Supply Chain Products since
April 1999. He joined the Company in January 1998 as Vice President,
Applications. From April 1993 through January 1998, Mr. Hughey served as Vice
President, Development for Marcam Corporation.

     Mr. Repetti has served as Senior Vice President and Chief Financial Officer
since November 1997. From April 1996 to November 1997, Mr. Repetti served as
Vice President, Finance and Administration and Chief Financial Officer. From
1994 to 1996, Mr. Repetti served as Vice President, Finance. From 1990 to 1994,
he served as Director of Financial Planning and Analysis for USAir Group, Inc.

     Under the terms of Mr. Owens' Employment Agreement, referred to above, the
Company has granted to Mr. Owens options to purchase a total of 2,000,000 shares
of the Company's Common stock (subject to anti-dilution adjustment under certain
circumstances), at a price of $7.81 per share. The Company will grant to Mr.
Owens additional options to purchase up to a total of 1,000,000 shares of its
Common Stock, subject to satisfaction of certain performance conditions relating
to the market price of the Company's Common stock. The Company has entered into
termination of employment agreements with three of its former executive
officers, David Roth, Joseph Broderick and Keith Enstice. These Agreements
appear as Exhibits 10.29, 10.30 and 10.31, respectively to this Annual Report on
Form 10-K.

     There are no family relationships among any of the executive officers or
directors of the Company. Executive officers of the Company are elected by the
Board of Directors on an annual basis and serve at the discretion of the Board
of Directors.

                                       18
<PAGE>

                                    PART II
                                    -------

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.

     The Company's common stock, $.002 par value per share, trades on The Nasdaq
Stock Market under the symbol "MANU." The following table sets forth the high
and low closing prices in dollars per share for the respective quarterly periods
over the last two fiscal years, as reported in published financial sources.
These prices reflect inter-dealer prices, without retail markup, markdown, or
commission, and may not necessarily represent actual transactions.

<TABLE>
<CAPTION>
<S>
Fiscal Year 1999                    High          Low
----------------                    ----          ---
<S>                                 <C>           <C>
First Quarter                       66 3/8        25 1/4
 (ended May 31, 1998)
Second Quarter                      31 1/2        14
 (ended August 31, 1998)
Third Quarter                       16 1/2         6 1/8
 (ended November 30, 1998)
Fourth Quarter                      17 3/8         7 1/2
 (ended February 28, 1999)

Fiscal Year 1998                    High          Low
----------------                    ----          ---

First Quarter                       34            14 7/8
 (ended May 31, 1997)
Second Quarter                      49 3/4        30
 (ended August 31, 1997)
Third Quarter                       45 3/4        28 1/2
 (ended November 30, 1997)
Fourth Quarter                      48 1/2        35 7/8
 (ended February 28, 1998)
</TABLE>

     As of June 11, 1999, there were approximately 404 stockholders of record
and approximately 16,500 beneficial owners of the Company's common stock,
according to information provided by the Company's transfer agent.

     The Company has never declared or paid any cash dividends on its common
stock and does not intend to do so in the foreseeable future. It is the present
intention of the Company to retain any future earnings to provide funds for the
operation and expansion of its business. In addition, the Company has an
unsecured committed revolving credit facility with a commercial bank that will
expire on September 30, 1999, unless it is renewed. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations Liquidity and
Capital Resources" and Note 5 of Notes to Consolidated Financial Statements.
During the term of the facility, the Company is subject to a covenant not to
declare or pay cash dividends to holders of its common stock. Future payment of
cash dividends, if any, will be at the discretion of the Board of Directors and
will be dependent upon the Company's financial condition, results of operations,
capital requirements and such other factors as the Board of Directors may deem
relevant, and will be subject to the covenants contained in the credit facility.

                                       19
<PAGE>

Recent Sale of Unregistered Securities

None

                                       20
<PAGE>

Item 6.  Selected Financial Data.

     Selected consolidated financial data with respect to the Company for each
of the five fiscal years in the period ended February 28, 1999 are set forth
below. This data should be read in conjunction with the Consolidated Financial
Statements of the Company and related Notes thereto for the corresponding
periods, which are contained in Part IV of this Form 10-K.

<TABLE>
<CAPTION>
                                                                   Fiscal Year Ended February 28 or 29,
                                                 1999             1998           1997          1996            1995
                                             -------------    ------------  -------------  ------------    -----------
                                                                  (in thousands, except per share data)
<S>                                          <C>              <C>           <C>            <C>             <C>
Statement of Operations Data:
  Revenues:
   License fees                               $  73,802         $ 107,547      $  54,342     $  33,111       $  26,483
   Consulting, maintenance, and other
    Services                                    103,762            72,716         45,865        33,865          25,334
                                             ----------       -----------    -----------   -----------     -----------
      Total revenues                            177,564           180,263        100,207        66,976          51,817

  Operating expenses:
   Cost of license fees                          13,415            11,102          5,011         3,070           3,060
   Cost of consulting, maintenance, and
    Other services                               50,585            33,213         19,618        15,181          12,990
   Sales and marketing                          103,006            66,228         34,961        22,933          17,491
   Product development                           49,389            32,794         18,889        12,133           8,127
   General and administrative                    19,828            14,639          9,344         6,664           5,617
   Restructuring costs (1)                       33,775                --             --            --              --
   Acquisition-related expenses (1)               3,095                --             --            --              --
   Purchased research and development (2)            --            47,340          3,697            --              --
                                             ----------       -----------     ----------    ----------     -----------
      Total operating expenses                  273,093           205,316         91,520        59,981          47,285

  (Loss) income from operations                 (95,529)          (25,053)         8,687         6,995           4,532
  Other income - net                              2,362             2,863          1,047         1,144             658
                                            -----------       -----------    -----------    ----------     -----------
  (Loss) income before income taxes             (93,167)          (22,190)         9,734         8,139           5,190
  Provision (benefit) for income taxes            2,945            (9,025)         5,077         3,064           1,801
                                            -----------       -----------    -----------    ----------     -----------

  Net (loss) income                           $ (96,112)        $ (13,165)     $   4,657     $   5,075       $   3,389
                                            ===========       ===========    ===========    ==========     ===========
  Basic (loss) income per share               $   (3.64)        $   (0.56)     $    0.22     $    0.24       $    0.17
                                            ===========       ===========    ===========    ==========     ===========
  Shares used in basic share computation         26,402            23,484         21,657        20,909          19,982
                                            ===========       ===========    ===========    ==========     ===========

  Diluted (loss) income per share            $    (3.64)        $   (0.56)     $    0.20     $    0.23       $    0.16
                                            ===========       ===========    ===========    ==========     ===========

  Shares used in diluted share computation       26,402            23,484         23,159        21,935          20,880
                                            ===========       ===========    ===========    ==========     ===========
</TABLE>

(1)  During fiscal 1999, the Company incurred charges to operations totaling
     $33.8 million for certain restructuring costs related to management's plan
     to reduce costs and improve operating efficiencies. The Company also
     recorded a deferred tax provision of $5.1 million as a result of
     establishing a valuation allowance against its deferred tax assets. Also
     during fiscal 1999, the Company incurred a non-recurring charge to
     operations totaling $3.1 million for certain acquisition-related expenses
     in connection with the business combination involving TYECIN Systems, Inc.
     The impact of these charges on basic and diluted loss per share was $1.59
     per share for fiscal 1999. Excluding the effect of these charges, basic and
     diluted loss per share would have been $2.05.

(2)  During fiscal 1998 and 1997, the Company incurred non-recurring, non-cash
     charges to operations totaling $47.3 million (or $28.6 million, net of
     $18.7 million tax benefit) and $3.7 million, respectively, in connection
     with the write-off of purchased research and development which had not yet
     reached technological feasibility and had no alternative future use. The
     impact of these charges on basic and diluted (loss) income per share was
     ($1.22) and ($1.09), respectively, in fiscal 1998, and ($.17) and ($.16)
     respectively, in fiscal 1997. Excluding the effect of these non-recurring,
     non-cash charges, basic and diluted income per share would have been $.66
     and $.59, respectively, in fiscal 1998, and $.39 and $.36, respectively, in
     fiscal 1997.

                                       21
<PAGE>

Item 7.   Management's Discussion and Analysis of Financial Condition and
Results of Operations.

Overview

     Manugistics Group, Inc. (the "Company") is a leading provider of solutions
for customer-centric supply chain optimization with the largest number of
clients of any supply chain planning vendor. The Company's solutions are
comprised of software products and related services that enable clients to
improve the efficiency at which products flow within and among companies from
raw materials or parts through manufacturing to delivery of product to the end
customer. The Company's solutions enable its clients to create and optimize
their supply chains around their customers and are quick to implement, adapt
easily to change, and deliver rapid results.

     With the Company's suite of supply chain software products, clients can
make improved operational decisions, resulting in increased revenues, reduced
inventories, improved customer service, improved relationships among trading
partners, greater speed to market, and lower overall costs throughout the supply
chain, with results achievable in as little as eight weeks. The Company
currently has clients in a broad spectrum of industries around the world. The
Company's products are primarily targeted at companies with dynamic supply
chains and, increasingly, at those that desire to take advantage of emerging e-
commerce opportunities.

     The Company's integrated suite of strategic, tactical, and operational
supply chain planning software products addresses the four key operational areas
of supply chain planning: demand planning, supply planning, manufacturing
scheduling, and transportation management and enables collaboration within and
among enterprises. That is, the Company's clients can collaborate with their
suppliers, their customers, and other third parties.

     During fiscal 1999, the Company experienced declines in license fee
revenues and share of the supply chain planning software market compared to
prior years. The decline in demand, increased price competition, and the
resulting losses, led to the Company's decision to restructure its business
during fiscal 1999 to reduce its operating expenses, improve its
competitiveness, and to attempt to return to profitability. The Company's
restructuring included significant headcount reductions, reorganization of the
Company's senior management team, hiring of a new Chief Executive Officer, and
an increased focus on core competencies and target markets and increased
investments in the Company's leading initiatives in e-commerce enabled supply
chain solutions. The Company believes that restructuring actions initiated in
fiscal 1999, will decrease operating expenses in fiscal 2000 compared with
fiscal 1999. There can be no assurances that the Company's restructuring actions
and decrease in operating expenses will be sufficient to offset the Company's
decrease in license fee revenues and return the Company to sustainable
profitability.

                                       22
<PAGE>

Results of Operations

     The following table sets forth statement of operations data for the three
years ended February 28, 1999, expressed as a percentage of total revenues:

<TABLE>
<CAPTION>
                                                                                Year ended February 28,
                                                                       1999              1998              1997
                                                                   ------------      -----------        -----------
<S>                                                                <C>               <C>                <C>
REVENUES:
 License fees                                                              41.6%             59.7%             54.2%
 Consulting, maintenance, and other services                               58.4%             40.3%             45.8%
                                                                   ------------      ------------       ------------
  Total revenues                                                          100.0%            100.0%            100.0%

OPERATING EXPENSES:
 Cost of license fees                                                       7.6%              6.2%              5.0%
 Cost of consulting, maintenance and other services                        28.5%             18.4%             19.6%
 Sales and marketing                                                       58.0%             36.7%             34.9%
 Product development                                                       27.8%             18.2%             18.8%
 General and administrative                                                11.2%              8.1%              9.3%
 Acquisition-related expenses                                               1.7%               --                --
 Restructuring costs                                                       19.0%               --                --
 Purchased research and development                                          --              26.3%              3.7%
                                                                   ------------      ------------       ------------
  Total operating expenses                                                153.8%            113.9%             91.3%
                                                                   ------------      ------------       ------------

(LOSS) INCOME FROM OPERATIONS                                             (53.8%)           (13.9%)             8.7%

OTHER INCOME - NET                                                          1.3%              1.6%              1.0%

(LOSS) INCOME BEFORE INCOME TAXES                                         (52.5%)           (12.3%)             9.7%

PROVISION (BENEFIT) FOR INCOME TAXES                                        1.7%             (5.0%)             5.1%

NET (LOSS) INCOME                                                         (54.1%)            (7.3%)             4.6%
</TABLE>

Revenues:

     The Company licenses software under non-cancelable license agreements and
provides related services, including installation, consulting, and maintenance.
License fees are generally recognized when a non-cancelable license agreement
has been signed, the software product has been shipped, there are no
uncertainties surrounding product acceptance, the fees are fixed and
determinable, no significant production, modification, or customization of the
software is required, and collection is considered probable. Fees are allocated
to the various elements included in license agreements based on the Company's
historical fair value experience. Fees related to consulting and implementation
services are recognized as the services are performed.  When the Company enters
into a license agreement with a client that requires significant customization
or paid enhancement of the software products, the Company recognizes revenue
related to the license agreement using contract accounting.

                                       23
<PAGE>

     License fees. The Company's license fees consist primarily of software
license revenues from direct sales. The Company also earns license fees through
indirect channels, primarily through complementary software vendors, consulting
firms, distributors, and systems integrators.

     License fees decreased to $73.8 million for the year ended February 28,
1999 from $107.5 million for the year ended February 28, 1998, and increased
from $54.3 million for the year ended February 28, 1997.  License fees as a
percentage of total revenues were 42% in fiscal 1999 as compared to 60% in
fiscal 1998 and 54% in fiscal 1997.  License fees decreased in fiscal 1999
because of, among other factors, sales execution issues and certain external
factors described below.

     The Company's direct sales force execution suffered from the rapid sales
force expansion that occurred in the fourth quarter of fiscal 1998 and the first
quarter of fiscal 1999, which resulted in delays in the new sales employees
becoming productive; the major sales territory re-alignment that resulted from
the rapid sales force expansion and changing to a vertical market organization
of the sales force; and certain issues with the integration of the products and
operations of ProMIRA Software, Inc. ("ProMIRA") and TYECIN Systems, Inc.
("TYECIN"). See "Factors that May Affect Future Results."

     External factors compounded the Company's sales execution problems and
affected its ability to generate license fee revenues, including new and
stronger competitive forces, issues impacting clients and prospects such as the
Year 2000 problem, and concerns with global economic conditions. These factors
lengthened or deferred sales cycles as clients diverted budgets and other
resources to accommodate testing and preparation for the Year 2000 and postponed
licensing decisions. In addition, the Company's operating results during fiscal
1999 raised concerns with clients and prospects about the Company's financial
viability, which tended to lengthen sales cycles. The Company believes that
these concerns adversely affected the Company's ability to generate license fee
revenues.

     Although there has been variation in license fees as a percentage of total
revenues over the past few quarters, the Company anticipates that license fees
are likely to represent approximately 40% to 45% of total revenues for fiscal
2000. See "Forward Looking Statements" and "Factors That May Affect Future
Results."

     Consulting, maintenance, and other services. Consulting, maintenance, and
other services ("services").  Services revenues primarily consist of fees from
software implementation engagements and the related training, consulting, and
maintenance revenues. Revenues from software implementation and consulting
engagements are recognized as the services are performed and are billed on a
time and materials basis. Maintenance revenues are recognized ratably over the
maintenance contract, and payments for maintenance fees are typically made in
advance of the support period. The software implementation process typically
requires two to twelve months to complete, depending on the complexity, scope of
the project, and client resources available. Services revenue increased to
$103.8 million for the fiscal year ended February 28, 1999 from $72.7 million
and $45.9 million for the fiscal years ended February 28, 1998 and 1997,
respectively.  As a percentage of total revenues, services were 58% in fiscal
1999 as compared to 40% and 46% in fiscal 1998 and 1997, respectively. These
increases in services revenues are primarily related to the continuation of
customer implementations from the license fee transactions in the fourth quarter
of fiscal 1998 and the first three quarters of fiscal 1999. The Company
typically begins to recognize services revenues in the months following
initiation of the implementation of software, which generally occurs within a
few weeks after execution of the license agreement. In addition, the increase in
the number of existing clients over time has resulted in additional training and
other consulting services revenues.

                                       24
<PAGE>

     Maintenance revenues increased following the increase of clients that have
licensed the Company's software products and entered into annual maintenance
contracts. Maintenance revenues tend to track software license fee transactions
in prior periods. In the past three fiscal years, approximately 95% of customers
with maintenance contracts have renewed these contracts.

Operating Expenses:

     General. In fiscal 1999, the Company incurred, and anticipates that it will
continue to incur, relatively high levels of expenditures for both sales and
marketing, product development; expansion of product innovation to enable
companies to take advantage of e-commerce opportunities, interface, and
integration technology; and expanding its indirect distribution channels through
alliances with complementary software vendors and consulting and implementation
organizations.  In addition, the Company will continue to implement its overall
cost containment program as it pursues its goal of returning to profitability.

     The Company bases its expense levels upon anticipated future revenues.
Since actual revenues were below those anticipated in fiscal 1999, the Company
expanded its efforts to contain expense growth in the quarter ended February 28,
1999 with a company-wide restructuring. See "Operating Expenses - Restructuring
costs."

     Cost of license fees. Cost of license fees consists of amortization of
capitalized software development costs, and cost of goods and other, which
includes royalty fees associated with third-party software included with the
Company's licensed software, and amortization of goodwill associated with
certain recent acquisitions. Software development costs and acquired research
and development costs are amortized at the greater of the amount computed using
either (a) the straight-line method over the estimated economic life of the
product, commencing with the date the product is first available for general
release, or (b) the ratio that current gross revenues from the product bears to
the total current and anticipated future gross revenues. Generally, an economic
life of two to five years is assigned to capitalized software development costs.
Goodwill is amortized over five years.

     Cost of license fees increased to $13.4 million for the fiscal year ended
February 28, 1999 from $11.1 million and $5.0 million for the fiscal years ended
February 28, 1998 and 1997, respectively. As a percentage of license fee
revenues, cost of license fees were 18% for the fiscal year ended February 28,
1999 as compared to 10% in fiscal 1998 and 9% in fiscal 1997.  The increase in
cost of license fees is largely due to additional amortization expense of
capitalized software costs following the general commercial release of new
supply chain planning software products. In addition, amortization of goodwill
associated with the acquisition of ProMIRA in the fourth quarter of fiscal 1998
and royalties paid for third-party software included with the Company's licensed
software has also increased the cost of license fees.

     Cost of consulting, maintenance, and other services. Cost of services
increased to $50.6 million for the fiscal year ended February 28, 1999 from
$33.2 million and $19.6 million for the fiscal years ended February 28, 1998 and
1997, respectively. As a percentage of services revenues, cost of consulting,
maintenance, and other services were 49% for the fiscal year ended February 28,
1999 as compared to 46% in fiscal 1998 and 43% in fiscal 1997. The increase in
cost of consulting, maintenance, and other services primarily resulted from
hiring additional consultants during the first part of fiscal 1999, increasing
product support and training personnel in both domestic and foreign locations.

     Sales and marketing. Sales and marketing expenses consist primarily of
personnel costs, commissions, promotional events, and advertising. Sales and
marketing expenses increased to

                                       25
<PAGE>

$103.0 million for the fiscal year ended February 28, 1999 from $66.2 million
and $35.0 million for the fiscal years ended February 28, 1998 and 1997,
respectively. As a percentage of total revenues, sales and marketing expenses
were 58 for the fiscal year ended February 28, 1999 as compared to 37 in
fiscal 1998 and 35 in fiscal 1997. Sales and marketing expenses increased
primarily because the Company added new personnel in both its domestic and
foreign locations throughout fiscal 1999. However, the Company significantly
reduced its sales and marketing workforce in January 1999 as part of its
corporate-wide restructuring. See "Item 1. Business," "Overview," and
"Strategy -Reorganize the Company." The Company also incurred promotional costs
to establish new offices and enhance its presence in foreign locations. As a
result of the Company's efforts to hire and train employees, broaden its global
presence, and promote its products, sales and marketing expenses increased as a
percentage of total revenues for fiscal 1999 and 1998.

     Product development. The Company records product development expenses net
of capitalized software development costs for products that have reached
technological feasibility in accordance with Statement of Financial Accounting
Standard No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed."

     The Company's gross development costs were approximately $59.5 million,
$43.1 million, and $25.7 million for fiscal 1999, 1998, and 1997, representing
33%, 24%, and 26%, respectively, of total revenues. The Company's net
product development expenses were approximately $49.4 million, $32.8 million,
and $18.9 million for fiscal 1999, 1998, and 1997, representing 28%, 18%, and
19%, respectively, of total revenues. The Company capitalized internally
developed software costs of $10.1 million, $10.3 million, and $6.8 million for
fiscal 1999, 1998, and 1997, representing 17%, 24%, and 26%, respectively, of
gross product development costs. Software development costs are amortized at the
greater of the amount computed using either (a) the straight-line method over
the estimated economic life of the product, commencing with the date the product
is first available for general release, or (b) the ratio that current gross
revenues bears to the total current and anticipated future gross revenues.
Generally, an economic life of two to five years is assigned to capitalized
software development costs.

     Gross product development costs and net product development costs increased
primarily because the Company hired additional developers of supply chain
planning software to develop new software products and new versions of existing
products, modify its products to enable them to address the requirements of new
markets, and to incorporate new technologies and capabilities into the Company's
product offerings. As a percentage of total revenues, net product development
expenses increased for fiscal 1999, largely because the Company has made and
expects to continue to make product development expenditures as it pursues its
strategy of developing and delivering new products and new capabilities as well
as ongoing efforts to ensure integration with software products of other
vendors. See "Forward Looking Statements" and "Factors That May Affect Future
Results."

     General and administrative. General and administrative expenses consist
primarily of personnel, infrastructure expenses, and the fees and expenses
associated with legal, accounting, and other functions. General and
administrative expenses increased to $19.8 million for the fiscal year ended
February 28, 1999 from $14.6 million and $9.3 million for the fiscal years ended
February 28, 1998 and 1997, respectively. As a percentage of total revenues,
general and administrative expenses were 11% for the fiscal year ended February
28, 1999 as compared to 8% in fiscal 1998 and 9% in fiscal 1997. The increase in
general and administrative expenses is

                                       26
<PAGE>

related to expenditures necessary to accommodate business decisions made in the
areas of sales personnel, acquisitions, and international operations.

     Acquisition-related expenses. The Company acquired TYECIN by merger
in June 1998. The Company accounted for the acquisition as a pooling of
interests and recorded a non-recurring charge during the second quarter of
fiscal 1999 of approximately $3.1 million for certain expenses related to this
transaction, including, among other items, accounting, legal, and severance
fees.

     Restructuring costs. In the third and fourth quarters of 1999, the Company
announced and implemented a restructuring plan aimed at reducing costs
and returning the Company to profitability. The restructuring plan was
necessitated due to the Company's poor financial performance throughout fiscal
1999, which resulted from various factors including but not limited to poor
sales execution, new and stronger competitive factors, lengthening of sales
cycles, and prospects' concerns about the Year 2000 and global economic
conditions. The Company reorganized to focus on its core business of providing
supply chain solutions to companies with dynamic supply chains, specifically
those in the customer-driven industries. The Company is also expanding its
product innovation to support transforming the supply chain to an e-chain,
interface and integration technologies, and broadening its distribution
channels. Once the plan is fully executed, the Company anticipates that its
quarterly operating expenses would be reduced from approximately $60 million to
approximately $40 million to $45 million. The Company anticipates that these
cost savings will approximate $60 to $80 million on an annualized basis. As a
result of the restructuring, the Company recorded charges of $700,000 and $33.1
million in the third and fourth quarters, respectively, in fiscal 1999. The
components of the charge included (in thousands):


          Severance and related benefits                $      4,094
          Lease obligations and terminations                  20,200
          Write-down of property, equipment and
          leasehold improvements                               6,418

          Write-down capitalized software development          1,343
          costs
          Goodwill                                             1,354
          Other                                                  366
                                                          ----------
          Total restructuring charge                      $   33,775
                                                          ==========


     Due to the redirection of the core business strategy, the Company
eliminated 408 positions, across all divisions, primarily located throughout
the Company's U.S. operations of which 330 were terminated prior to year-end.
The Company has recorded a charge of $4.1 million and has paid approximately
$2.9 million in severance related costs as of February 28, 1999, with the
remaining to be paid out during fiscal 2000.  As management continues to
implement its restructuring plan, additional positions may be identified for
termination.

     The provision for lease obligations and terminations relates primarily to
future lease commitments on office facilities that will be closed as part of the
restructuring. The charge represents future lease obligations, net of projected
sublease income, on such leases past the dates the offices will be closed by the
Company. Some of these subleases are in negotiation but have not been finalized,
and therefore the charge includes management's estimates of the likely outcome
of these negotiations. Cash payments on the leases and lease terminations will
occur over the remaining lease terms, the majority of which expire prior to
2009.

                                       27
<PAGE>

  The write-down of operating assets relates to a charge to reduce the carrying
amount of certain equipment, furniture and fixtures and leasehold improvements,
to their estimated net realizable value.  These write-downs represent a loss
from abandonment of $6.4 million. The write-down of capitalized software
development costs relates to a charge of $1.3 million for costs associated with
abandoned software products. The Company has also recorded a charge of $1.4
million to write-down goodwill related to its determination to abandon the IRI
business. The decrease in net future cash flows results primarily from
abandoning software products acquired. The net realizable value of these assets
was determined based on management estimates, which considered such factors as
the nature and age of the assets to be disposed of, the timing of the assets'
abandonment, and the method and potential costs of the disposal. Such estimates
will be monitored each quarter and adjusted if necessary. The effect of holding
these assets in the intervening period is immaterial.

  Since the restructuring occurred near the end of the fiscal year, at February
28, 1999, no subleasing agreements were executed.  Subleasing arrangements are
expected to be finalized during fiscal year 2000 for the restructured
locations.  As space is subleased, the abandoned assets are primarily being used
by the sub-lessors.  The abandoned assets are not held for sale. The future
lease payments plus the value of the leasehold improvements are greater than the
expected future sub-lessor-payments. Since full recovery is not anticipated, the
related assets are written down to their estimated net realizable value.

  The following table depicts the restructuring activity through February 28,
1999 (in thousands):

<TABLE>
<CAPTION>
                                       Initial         Adjustment      Utilization       Accrual          Remaining
                                        Charge         To Charge         of Cash         Non-Cash          Accrual
                                    --------------  ----------------  -------------  ----------------  ----------------
<S>                                 <C>             <C>               <C>            <C>               <C>
Severance Costs                        $     4,094     $          --    $   (2,942)     $         --      $       1,152
Lease obligation costs                      20,200                --        (1,286)               --             18,914
Impairment of long-lived assets              9,115                --            --            (7,406)             1,709
Other                                          366                --          (214)               --                152
                                       -----------     -------------    ----------      ------------      -------------
Total                                  $    33,775     $          --    $   (4,442)     $     (7,406)     $      21,927
                                       ===========     =============    ==========      ============      =============
</TABLE>


     Purchased research and development. In February 1998, the Company acquired
all the outstanding shares of ProMIRA in exchange for approximately $64.5
million of consideration composed of cash, shares of Manugistics common stock
and options to purchase shares of Manugistics common stock.

     This acquisition was consistent with the Company's strategy of rapidly
expanding into new markets. ProMIRA competed in industries and market segments
that the Company had targeted for entry, and it had developed complementary
product capabilities. The Company intended this acquisition to accelerate its
delivery of a solution in the new industries and market segments. The technology
acquired in the ProMIRA acquisition consisted of existing and in-process
technologies. These projects were intended to address specific supply chain
planning needs of certain industry and market segments, i.e., high-tech,
industrial, and discrete manufacturers.

     The Company utilized an independent appraiser of recognized standing to
value the assets of ProMIRA; identify the existing technology and the in-process
research and development ("R&D"); and allocate the purchase price among the
assets. The in-process R&D had not reached technological feasibility, had no
future alternative use, and successful development of the projects was
uncertain. The Company accounted for the acquisition as a purchase and, in

                                       28
<PAGE>

accordance with generally accepted accounting principles, charged the value of
acquired in-process R&D of $47.3 million to expense in the fiscal quarter and
year ended February 28, 1998.

     ProMIRA's existing technology was a commercially viable product offering
that assists users in developing optimized manufacturing and supply chain plans
and enables rapid, intelligent responses to changes in demand, supply, product
design, or other business objectives. During the first three quarters of fiscal
1999, this product generated total revenues consistent with management's
expectations.

     The in-process technology consisted of two projects. The first project
consisted of three releases planned for commercial availability in fiscal 1999
and fiscal 2000. These releases represented major R&D efforts, including a
general re-architecture of the offering to enable integration to the Manugistics
solution architecture, incorporation of a new architecture to enable robust
simultaneous constraint of materials and capacity, a port to the UNIX platform,
incorporation of four-digit import, display and export functionality to achieve
Year 2000 compliance and a re-write of the entire ProMIRA solution to utilize a
single industry-standard relational database and a consolidated object model
to enable a persistent store. The Company estimated that it would incur $6
million to $10 million in R&D costs over the two years following the acquisition
to develop this project on a successful and timely basis.

     The second in-process project entailed developing a completely new
configuration product that was aimed at the intelligent creation of complex
bills of material and planned for introduction by the end of fiscal 2000. This
technology would also help meet the needs of the high-tech, industrial and
discrete manufacturers in the markets that the Company was entering. The Company
estimated that it would incur $1 million to $3 million in costs, over a two year
period following the transaction, to develop this project on a successful and
timely basis.

     The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions in financial statements. Such estimates and assumptions were
used in the determination of the value of the acquired ProMIRA assets. In
addition, the Company employed an independent appraiser to determine the
allocation of the purchase price to the acquired intangible assets. The value
assigned to purchased in-process technology was determined by estimating the
contribution the purchased in-process technology will make to developing
commercially viable products, estimating the resulting net cash flows from
revenues of the successfully developed products, and discounting the net cash
flows to their present value using a risk-adjusted discount rate.

     Total revenues resulting from the ProMIRA acquisition were projected to
exceed $500 million within five years, assuming the successful completion and
market acceptance of the major R&D-stage products. Estimated revenue from
ProMIRA's existing technologies was expected to nearly double in fiscal 1999,
grow approximately 30% in fiscal 2000, then rapidly decline as the in-process
R&D projects were completed and existing technology rapidly approached
obsolescence as a result of new product innovations developed by the Company.
The estimated revenues for the in-process projects were expected to peak in
fiscal 2004 and then decline as other new products and technologies were
expected to enter the market. These revenue levels reflected the benefits
expected from the continued rapid growth of the supply chain planning market
as forecast by industry and market analysts, access to new markets and
industries, leveraging of the Company's anticipated growth of sales and
marketing resources and the Company's anticipated global expansion.  The Company
does not believe that it will be able to achieve the revenue targets originally
projected for sales of the in-process R&D projects.

                                       29
<PAGE>

Manugistics underwent a corporate-wide restructuring in January 1999 in response
to decreased sales growth and general economic conditions. As part of this
restructuring, the Company decreased its workforce by approximately thirty
percent and re-defined its focus on core target markets. Although the Company
feels that its prospects for sales of the in-process projects are strong,
management does not anticipate that sales will reach the levels originally
forecasted.

     Cost of sales and operating expenses were estimated based upon industry
levels and management's expectations, in conjunction with the Company's then
normal operating history. The Company expected that the ProMIRA products would
generate net profit margins of 15% to 16% by fiscal 2000. This margin
improvement was expected to derive from the improved attractiveness of ProMIRA's
planned products as well as economies of scale derived from Manugistics' sales
force and markets.

     The rates utilized to discount the net cash flows to their present value
are based on cost of capital calculations. The Company adjusted the discount
rates to address the risks inherent in developing the acquired technologies.
Accordingly, the Company used the following ranges of discount rates to address
the various levels of risk: 25 percent for the existing products and technology
and 40 to 45 percent for the in-process technologies. These risk-adjusted
discount rates are based upon the uncertainties in the economic estimates
described above, the inherent uncertainty surrounding the successful development
of the purchased in-process technology, the useful life of such technology, the
stage of completion of such technology, the profitability levels of such
technology and the uncertainty of technological advances that are unknown at
this time.

     As the Company experienced execution and performance problems during the
course of fiscal 1999, management decided to bypass the second planned release
of the first in-process technology project and incorporate these planned
capabilities directly into the subsequent third planned release of the first in-
process technology project. This decision was made in the second quarter of
fiscal 1999.  The Company believes that this strategy will enable it to
accelerate the delivery of this release of the in-process technology
incorporating the simultaneous constraint-based capabilities and will yield
greater net economic benefits to the Company. If the Company is unable to
develop the third planned release of the first project in a timely and
successful manner, its ability to recognize future revenues from this product
would be adversely affected - as would be the case with any of its development
projects. In addition, as a result of the corporate restructuring in January
1999 the Company decided not to pursue the development of the second in-process
technology project, the configuration product.

     Because the second planned release of the first in-process technology
project was bypassed, it generated no revenues or expenses. The third planned
release of the first in-process project was originally planned for completion
and release in late 1999 to early 2000. The Company has now scheduled the
initial release for the summer of 1999 and has scheduled a subsequent release
for the summer of 2000. The Company also decided in January 1999 not to further
develop the new configuration product (originally scheduled for release at the
end of fiscal 2000). This project generated no revenues, and it incurred
approximately $540,000 in costs during fiscal 1999.

     Although the Company believes that the foregoing assumptions used in the
forecasts are reasonable, no assurance can be given that actual results
will reflect the underlying assumptions used to estimate expected project sales,
development costs or profitability, the events associated with such projects, or
used to value the in-process technologies. For these reasons, actual results may
vary from the projected results.

Other income - net:

                                       30
<PAGE>

      Other income includes interest income from short-term investments,
interest expense from borrowings, foreign currency exchange gains or losses, and
other gains or losses. Other income decreased to $2.4 million for the fiscal
year ended February 28, 1999 from $2.9 million the fiscal year ended February
28, 1998 and increased from $1.0 million for the fiscal year ended February 28,
1997, and as a percentage of total revenues were 1% for the fiscal year ended
February 28, 1999 as compared to 2% in fiscal 1998 and 1% in fiscal 1997. Other
income decreased primarily because the Company sold investments in the current
year to cover operating expenses. As a result, income from investments
decreased. In the previous year, greater interest income was generated from
short-term investments following the investment of the net proceeds of a public
offering of the Company's common stock completed in August 1997.

Provision for income taxes:

     As a result of the loss in fiscal 1999, the Company recorded a valuation
allowance against the net deferred tax asset. The net deferred tax asset relates
to certain domestic and foreign net operating losses. Although realization is
not assured for the remaining deferred tax assets, management believes it is
more likely than not that they will be realized through future taxable earnings.
In fiscal 1998, the Company recorded a loss as a result of the write-off of
purchased research and development associated with the acquisition of ProMIRA.
Management of the Company believes that in fiscal 2000 the effective tax rate of
the Company on a consolidated basis is likely to be approximately 39%, excluding
non-recurring charges recorded in connection with acquisitions or other
transactions. This estimate is based on current domestic and foreign tax law and
is thus subject to change. See "Forward Looking Statements" and Note 9 of Notes
to Consolidated Financial Statements.

Liquidity and Capital Resources:

<TABLE>
<CAPTION>
                                                                      February 28,
                                           ------------------------------------------------------------------
                                              1999          Change          1998         Change       1997
                                           ----------     ----------     ----------    ----------   ---------
<S>                                        <C>            <C>            <C>           <C>          <C>
Working Capital                                $31,138          (68%)       $96,394         188%     33,443
Cash, cash equivalents,
  and marketable securities                    $43,362          (47%)       $82,137         266%     22,465
</TABLE>


     The Company has historically financed its growth through funds generated
from operations, proceeds from offerings of capital stock, and to a lesser
extent, short-term borrowings under a revolving credit facility. The decrease in
working capital for fiscal 1999 as compared to fiscal 1998, resulted principally
from decreases in cash, cash equivalents, marketable securities, and accounts
receivable, and increases in accrued expenses, and deferred revenue.

     The Company used cash of $27.8 million for the fiscal year ended February
28, 1999 to fund operating activities. Operating cash flows decreased largely
because of the net loss before non-cash expenses. Additionally, decreases in
accounts receivable and deferred taxes and increases in deferred revenue and
depreciation and amortization more than offset decreases in accounts payable and
accrued expenses.

     Investing activities provided cash of $11.9 million for the fiscal year
ended February 28, 1999. Purchases of property and equipment and capitalization
of software development costs were more than offset by the sales of marketable
securities. Financing activities provided cash of $16.5 million for the fiscal
year ended February 28, 1999, primarily from the exercise of employee stock
options and purchases of the Company's common stock under the Company's

                                       31
<PAGE>

employee stock purchase plan and borrowings of $9.5 million in cash against the
Company's revolving credit facility.

     The Company has an unsecured committed revolving credit facility with a
commercial bank. Under the terms of the facility, the Company may request cash
advances, letters of credit, or both in the aggregate amount of up to $10
million. The Company may make borrowings under the facility for short-term
working capital purposes or for acquisitions (acquisition-related borrowings are
limited to $7.5 million per acquisition). The facility contains certain
financial covenants that the Company believes are generally typical for a
facility of this nature and amount. This facility will expire in September 1999,
unless renewed. The Company does intend to renew or replace its revolving credit
facility. As of February 28, 1999, $10 million was outstanding on the revolving
credit facility, including letters of credit. Subsequent to year-end, the
Company repaid $9.5 million of the $10 million outstanding on the revolving
credit facility. The remaining $500,000 represents outstanding letters of
credit.

     For the fiscal year ended February 28, 1999, the Company incurred a loss of
approximately $96 million. As noted above, the Company restructured certain of
its business operations during the third and fourth quarters of fiscal 1999 to
reduce operating expenses, continue its efforts to improve execution and
efficiencies, better align expenses with revenues, and enhance its sales and
marketing activities to meet the challenges of the marketplace.
The Company's restructuring included significant headcount reductions,
simplification and reorganization of the Company's senior management team,
hiring of a new Chief Executive Officer, and an increased focus on and increased
investments in the Company's early lead in e-commerce enabled supply chain
solutions. The Company believes that restructuring actions affected in fiscal
1999 will decrease operating expenses in fiscal 2000 compared with fiscal 1999
and help the Company achieve sustainable profitability. There can be no
assurances that the Company's restructuring actions and decrease in operating
expenses will be sufficient to offset the Company's decrease in license fee
revenues and return the Company to substainable profitability. The Company
believes that its existing cash balances and marketable securities, anticipated
funds generated from operations, and amounts available under its revolving
credit facility and other possible sources of funding will be sufficient to meet
its anticipated liquidity and working capital requirements in the near term. The
Company anticipates that, in light of its operating results for fiscal 1999, the
cost of any additional funds which the Company might obtain, might be greater
than funds available to the Company under its existing revolving credit facility
or otherwise. In the event that the Company requires additional financing and is
unable to obtain it on terms satisfactory to the Company, its liquidity, results
of operations, and financial condition would be materially adversely affected.
The Company believes that inflation did not have a material effect on its
results of operations in fiscal 1999.

Year 2000 Compliance

     General. Many older computer systems, software products, and embedded
microprocessor chips that are in use today were programmed to accept two digit
entries in the date code field (e.g., "98" for "1998"). These systems, software,
and embedded microprocessor chips need to be modified or upgraded to distinguish
twenty-first century dates (e.g., "2002") from twentieth century dates (e.g.,
"1902"), in order to avoid the possibility of erroneous results or systems
failures.

     The Company has reviewed and continues to evaluate and update its formal
processes and procedures to address any potential Year 2000 compliance issues
relating to its corporate infrastructure and to the software products that it
licenses to clients. The Company believes that it has allocated adequate
resources for this purpose and expects its Year 2000 compliance program to be
completed by the Year 2000. While the Company believes that it has adequately
tested and modified the products it currently actively markets, the Company
does not intend to test or modify all prior versions of its software products or
certain software products that the Company plans to replace with either new
software products or Year 2000 compliant releases by the end of 1999. All
clients who have licensed the Company's software have been contacted and
strongly encouraged to upgrade to a Year 2000 compliant version of the Company
provided software. The Information Technology Association of America ("ITAA")
has recently certified the Company's software development processes as part of
the Company's comprehensive effort to address the Year 2000 issues.

                                       32
<PAGE>

     Corporate Infrastructure State of Readiness. The Company believes that its
identification of Year 2000 compliance issues is complete with respect to the
Company's internal operating systems. The infrastructure is composed of IT
Systems (i.e. financial, human resources, order entry, client support tracking,
voicemail) and non-IT systems (i.e. elevators, fire suppression systems, UPS
systems). The Company has identified which systems are not affected and which
systems need replacement or modification. The Company believes that all
identified systems that are at risk will either be, i.e., made Year 2000
compliant or be replaced before December 31, 1999. The Company expects that its
business critical systems that have date sensitivity will be fixed, tested, and
in place before the year 2000. The Company believes that it has communicated
with all its material vendors, suppliers, landlords, and other third parties
regarding Year 2000 compliance of embedded processors in computers and
facilities, software, and other information technology, and other products and
services which the Company obtains from such third parties. The Company
anticipates that affected embedded processors will be replaced before the Year
2000. Most of the Company's landlords have provided guarantees of Year 2000
compliance or descriptions of the work being performed to achieve compliance
with their facilities and operations. Although the Company has completed its
assessment of the Year 2000 compliance issues with respect to the products,
facilities, and services which it obtains from third parties, the Company
continues to monitor and assess Year 2000 issues relating to such products,
facilities, and services.

     The Company has tested all business critical systems for Year 2000
compliance, whether or not these systems have been warranted Year 2000 compliant
by the manufacturer. The testing environment has been established and test
development is ongoing. Test execution began at the end of October 1998 and
finished, for business critical systems, at the end of February 1999. The
Company is in the process of making required renovations to the IT and non-IT
systems within the corporate infrastructure. The Company anticipates these
renovations will be validated by the end of calendar third quarter 1999, and
fully implemented before the year 2000. Contingency plans for the various
business areas of the Company will be developed in the second half of calendar
year 1999.

     Licensed Software Products. The Company has tested the products it
currently actively markets, in environments containing third-party software and
tools used in the production of and embedded in the Company's solutions, along
with supported relational databases, and believes the software currently
marketed by the Company to be Year 2000 compliant. The Company, however, can
make no assurances that those third-party platforms will not experience issues
related to the Year 2000.

     Costs. The Company has expensed approximately $360,000 as of February 28,
1999 in its Year 2000 compliance program, mainly for consulting services and
hardware costs. Approximately seventeen percent (17%) of the costs were for
identification and assessment of the Year 2000 issue, approximately fifty-eight
percent (58%) of the costs were for modification and replacement, and twenty-
five percent (25%) were for testing. The Company currently estimates that it
will cost an additional $400,000, budgeted under its information technology and
product development functions, prior to January 1, 2000, to modify its internal
information systems, other systems, and internally developed software products
affected by the Year 2000 issue; the portion of this amount attributable to
fiscal 2000 constitutes approximately four percent (4%) of the information
technology budget for fiscal 2000. The Company estimates that of the remaining
costs, eighty percent (80%) will be for modification and replacement and twenty
percent (20%) will be for testing. The Company does not separately track the
internal costs for its Year 2000 compliance project; such costs consist
principally of the related payroll costs for its employees working on the
project.  See "Forward Looking Statements" below.

                                       33
<PAGE>

     Risks. Software products as complex as those offered by the Company might
contain undetected errors or failures when first introduced or when new versions
are released. This includes the risk that products thought to be Year 2000
compliant are not Year 2000 compliant. While the Company believes that it has
adequately assessed, corrected, and tested its products to address the Year 2000
issue, there can be no assurances that the Company's software products contain
or will contain all necessary date code changes or that errors will not be found
in new products or product enhancements after commercial release, which could
result in loss of or delay in market acceptance or potential liability to our
customers or other third parties. In addition, the Company might experience
unforseen difficulties that could delay or prevent the continued successful
development and release of products that are Year 2000 compliant. If the Company
experiences any unforseen delays or is delayed in its efforts to make the date
code changes necessary in order to achieve Year 2000 compliance of its products,
there could be a material adverse effect upon the Company's business, operating
results, financial condition, and cash flows.

     The Company utilizes third-party vendor equipment, telecommunications
products, and software products. The Company is currently taking steps to
address the impact, if any, of the Year 2000 compliance issue surrounding such
third-party products. The Company has been communicating with such third parties
about their plans and progress in addressing the Year 2000 problem, and the
Company has requested assurances that equipment, products, and services provided
by such third parties will be Year 2000 compliant. The Company has received such
assurances from certain of the third-party vendors and is waiting to receive
such assurances from the remaining vendors. However, such third parties' Year
2000 compliance efforts are not within the control of the Company. In the event
that such additional assurances are not timely received, the Company will switch
to another vendor or take such other action as the Company shall then deem
appropriate. The failure of any critical technology components to operate
properly may have a material impact on business operations or require the
Company to incur unanticipated expenses to remedy any problems.

     There are substantial operational risks beyond the Company's control,
including the risk that viral services provided by utilities and governmental
agencies will be interrupted. It is possible that interruptions in vital
services in late calendar year 1999 and early calendar year 2000 will interfere
with normal business operations, and that such failures could materially and
adversely affect the Company's results of operations.

     Many companies, including the Company's clients and prospects, might need
to modify or upgrade their information systems to address this Year 2000 issue.
The effects of this issue and of the efforts by companies to address it are
unclear. The Company believes that Year 2000 issues have affected the purchasing
patterns of clients and prospective clients. Many companies are allocating
significant resources to attain Year 2000 compliance. These allocations have
resulted in reduced resources being available to license software products and
utilize the implementation services such as those offered by the Company.
Additionally, Year 2000 issues inherent in a client's other software programs
might significantly limit that client's ability to realize the intended benefits
to be derived from the Company's supply chain planning software. Due to the
general uncertainty inherent in the Year 2000 issues resulting, in part from,
the possible risks described above, the consequences of the Year 2000 failures
will have a material impact on the Company's operating results, financial
conditions, and cash flows.

Litigation

     In the ordinary course of business, the Company is a party to legal
proceedings and claims. In addition, from time to time, the Company may have
contractual disagreements with certain clients concerning the Company's products
and services. The Company has established

                                       34
<PAGE>

accruals related to such matters that are probable and reasonably estimable. In
management's opinion, any liability that may ultimately result from the
resolution of these matters in excess of amounts provided would not be likely to
have a material adverse effect on the financial position of the Company.

     On March 7, 1997, the Company, as part of the acquisition of certain assets
of Information Resources, Inc. ("IRI"), entered into several agreements with
IRI, including a Data Marketing and Guaranteed Revenue Agreement ("Agreement")
and an Asset Purchase Agreement ("Purchase Agreement"). The Agreement set forth
the obligations of the parties with regard to revenues to be paid to IRI from
the sale by the Company of specified products provided by the Company to IRI.
Under the terms of the Agreement, the Company guaranteed revenue to IRI in a
total amount of $16.5 million over a period of years following execution of the
Agreement via three separate revenue streams. As part of the $16.5 million
commitment, the Company agreed to guarantee revenues to IRI in a total amount of
$12 million through three separate payments over an initial three (3) year
period from execution of the agreement ("First Revenue Stream").

     In discussions with IRI with respect to the Company's refusal to make
payments of the First Revenue Stream, the Company asserted that its ability to
generate revenues from the sale of IRI's products (from which such First Revenue
Stream payments were to be derived), was directly attributable to the fact that
such products were impaired and were therefore not saleable. Under the terms of
the Agreement impairment of the IRI products would constitute grounds for
restructuring or modifying the payment obligations with regard to the First
Revenue Stream. In such discussions, IRI disputed the Company's characterization
of its products as impaired. IRI responded disagreeing that an impairment
existed, but in the alternative, indicating that any impairment was corrected.
As previously reported by the Company, the parties discussed their disagreement
over the impairment issue until IRI filed a complaint in the Circuit Court of
Cook County, Illinois on January 15, 1999. The complaint alleges breach of the
Agreement seeking damages in an amount in excess of $11.9 million, for the
Company's alleged failure or anticipatory failure to make guaranteed payments in
the amount of $12 million. The complaint also alleges a breach of a separate
Non-Competition and Non-Solicitation Agreement executed at the same time as the
Agreement seeking damages in an amount in excess of $100,000. The Company filed
a Motion to Stay Proceedings and Compel Arbitration, which was granted as to the
claim under the Agreement and denied as to the claim under the Non-Competition
and Non-Solicitation Agreement. Arbitration proceedings have not yet commenced;
the civil action is in the early stages of discovery. It is not possible at this
time to predict the outcome of the litigation or arbitration or the amount or
nature of any loss.

     On April 2, 1999, the Company received notice from IRI of the dismissal of
the lawsuit filed against IRI by Think Systems Corporation. Such dismissal was a
condition precedent to the obligation of Manugistics Services, Inc. to proceed
to a Second Closing pursuant to the Purchase Agreement. IRI has requested that
the parties proceed to such Second Closing which relates to the transfer of
ownership of certain assets from IRI to Manugistics Services, Inc. Further,
under the Agreement, the dismissal of the Think Systems lawsuit triggers the
commencement of a second revenue stream under the Agreement. The second revenue
stream represents a total guaranteed revenue of $1.75 million for the first and
second year following the Second Closing and $2.25 million for the third revenue
year following the second closing.

     As previously reported by the Company in its Current Report on Form 8-K
dated June 18, 1998, a number of lawsuits were filed in various Federal District
Courts alleging disclosure violations under the federal securities laws against
the Company, its Chairman and then Chief Executive Officer, and its Chief
Financial Officer, arising from alleged omissions and misrepresentations by the
Company and the two individuals regarding the Company's business, operations,
and financial condition. Each complaint seeks class action status on behalf of
purchasers of the Company's common stock during certain specified periods and
seeks

                                       35
<PAGE>

unspecified monetary damages. The actions have been consolidated in the District
of Maryland and an amended consolidated complaint filed by the plaintiffs. The
Company will be filing a motion to dismiss. It is not possible at this time to
predict the outcome of the litigation or the amount or nature of any loss which
the Company might incur in connection with the resolution of this proceeding.

Factors that May Affect Future Results

     In addition to the other information in this Form 10-K, the following
factors should be considered in evaluating the Company and its business.

     The Company's operating results have varied in the past and might vary
significantly in the future because of factors such as domestic and
international business conditions or the general economy, the timely
availability and acceptance of the Company's products, technological change,
issues with the Year 2000 problem faced by clients and prospects, the effect of
competitive products and pricing, the effects of marketing pronouncements by
competitors or potential competitors, changes in the Company's strategy, the mix
of direct and indirect sales, changes in operating expenses, personnel changes,
and foreign currency exchange rate fluctuations. Furthermore, clients may defer
or cancel their purchases of the Company's products if they experience a
downturn in their business or if there is a downturn in the general economy.

Potential for Significant Fluctuations in Quarterly Results; Seasonality

     The Company typically ships software products shortly after license
agreements are signed and, therefore, does not maintain any material contract
backlog. Furthermore, the Company has typically recognized a substantial portion
of its revenues in the last month of a quarter. As a result, license fee
revenues in any quarter are substantially dependent on orders booked and shipped
in that quarter, and the Company cannot predict license fee revenues for any
future quarter with any significant degree of certainty. The Company has
experienced and might continue to experience from time to time very large,
individual license sales which can cause significant variations in quarterly
license revenues.

     The Company's license fee revenues are also difficult to forecast because
the market for business application software products is evolving rapidly, and
the Company's sales cycles vary substantially from client to client. The sales
cycles depend, in part, on the nature of the transactions, including the breadth
of the solution to be licensed and the organizational and geographic scope of
the licenses.  Because the licensing of the Company's products generally
involves a significant capital expenditure by the client, the Company's sales
process is subject to the delays and lengthy approval processes that are
typically involved in such expenditures. In addition, the Company expects that
sales derived through indirect channels will be harder to predict in timing and
size than for direct sales because there is less direct contact and influence
with the prospective client. For these and other reasons, the sales cycle
associated with the licensing of the Company's products varies substantially
from client to client and typically lasts between six and twelve months, during
which time the Company might devote significant time and resources to a
prospective client, including costs associated with multiple site visits,
product demonstrations, and feasibility studies, and might experience a number
of significant delays over which the Company has no control.

     The Company bases its expense levels upon anticipated future revenues. A
substantial portion of the Company's revenues in any quarter is typically
derived from a limited number of large contracts. Therefore, if revenues in a
period are below expectations, operating results are likely to be adversely
affected, which occurred throughout fiscal 1999. Net income might be

                                       36
<PAGE>

disproportionately affected by a reduction in revenues because a proportionately
smaller amount of the Company's expenses varies directly with revenues. The
Company has generally realized lower revenues in its first fiscal quarter
(ending in May) than in the immediately preceding quarter. The Company believes
that these fluctuations are caused primarily by client budgeting and purchasing
patterns and by the Company's sales commission policies, which compensate
personnel for meeting or exceeding annual and other performance quotas.

Competition

     The market for business application software is highly competitive and
subject to rapid change. Many application software vendors offer products that
are directly competitive with the software products marketed by the Company.
Some of the Company's current and potential competitors have significantly
greater financial, marketing, technical, and other competitive resources than
the Company. As a result, they may be able to adapt more quickly to new or
emerging technologies and changes in customer requirements, or to devote greater
resources to the development, promotion, and sale of their products than can the
Company. Certain competitors have also attempted to raise concerns regarding the
Company's viability given the Company's recent losses.

     Certain ERP system vendors have acquired supply chain planning software
companies, products, or functionality, or have announced plans to develop new
products or to incorporate additional functionality into their current products
that, if successfully developed and marketed, could compete with the products
offered by the Company. Furthermore, current and potential competitors may make
acquisitions of other competitors or may establish cooperative relationships
among themselves or with third parties to increase the ability of their products
to address the supply chain planning needs of the Company's prospective
clients. Accordingly, it is possible that new competitors may emerge and rapidly
acquire significant market share. If this were to occur, the business, operating
results, financial condition, and cash flows of the Company could be materially
adversely affected.

Risks of a Developing Market

     The Company currently derives a significant portion of its revenue from
licenses for supply chain planning software and related services. However, the
Company is investing significant resources in developing and marketing broader
functionality with its e-commerce technology. The market for this broader
functionality may not develop, or competitors might develop superior
technologies, products, or both, each of which could have a material adverse
effect upon the Company's business, operating results, financial condition, and
cash flows.

Dependence on New Products and Rapid Technological Change; Risk of Product
Defects

     The market for the Company's products is characterized by rapidly changing
technologies, frequent new product introductions, rapid changes in customer
requirements, and evolving industry standards. The Company believes that its
future financial performance will depend in large part on its ability to
maintain and enhance its products, develop new products that achieve market
acceptance, maintain technological competitiveness, and meet an expanding and
evolving range of client requirements. There can be no assurance, however, that
the Company will be successful in developing and marketing new products or
product enhancements that respond to technological change or evolving industry
standards, that the Company will not experience difficulties that could delay or
prevent the successful development, introduction, and marketing of these
products, or that its new products and product enhancements will adequately meet
the requirements of prospective clients and achieve market acceptance. If the
Company is unable, for technological or other reasons, to successfully develop
and introduce new products or

                                       37
<PAGE>

product enhancements, the Company's business, operating results, financial
condition, and cash flows could be materially adversely affected.

     The Company's software suite incorporates some software code from third-
party affiliates. There can be no assurance that the Company will be able to
continue to use these third-party software codes nor that the Company will be
able to identify, license, and integrate replacement products.

     In addition, software products as complex as those offered by the Company
might contain undetected errors or failures when first introduced or when new
versions are released. There can be no assurance, despite testing by the Company
and by current and prospective clients, that errors will not be found in new
products or product enhancements after commercial release, resulting in loss of
or delay in market acceptance, which could have a material adverse effect upon
the Company's business, operating results, financial condition, and cash flows.

Lack of Product Diversification

     The Company's future results depend on continued market acceptance of
supply chain planning software and services as well as the Company's ability to
continue to adapt and modify this software to meet the evolving needs of its
prospects and clients. Any reduction in demand or increase in competition in the
market for supply chain planning software products could have a material adverse
effect on the Company's business, operating results, financial condition, and
cash flows.

Intellectual Property and Proprietary Rights

     The Company regards its software as proprietary and relies on a combination
of trade secret, copyright and trademark laws; license agreements;
confidentiality agreements with employees; nondisclosure and other contractual
requirements imposed on its clients, consulting partners and others; and other
methods to protect proprietary rights in its products. There can be no assurance
that these protections will adequately protect its proprietary rights or that
the Company's competitors will not independently develop products that are
substantially equivalent or superior to the Company's products. In addition, the
laws of certain countries in which the Company's products are or may be licensed
do not protect the Company's products and intellectual property rights to the
same extent as the laws of the United States. Although the Company believes that
its products, trademarks, and other proprietary rights do not infringe upon the
proprietary rights of third parties, there can be no assurance that third
parties will not assert infringement claims against the Company.

Expansion of Indirect Channels

     The Company is developing and maintaining significant working relationships
with complementary vendors, such as ERP system vendors, and consulting firms
that the Company believes can play an important role in marketing the Company's
products. The Company is currently investing, and intends to continue to invest,
significant resources to develop these relationships, which could adversely
affect the Company's operating margins. There can be no assurance that the
Company will be able to attract organizations that will be able to market the
Company's products effectively, that they will be qualified to provide timely
and cost-effective client support and service, or that current partners will
continue to promote and/or license the Company's solutions. In addition,
difficulties experienced by these complementary vendors in selling the Company's
products and services may adversely affect the Company's results of operations.
Furthermore, the Company's arrangements with these organizations are not
exclusive and, in many cases, may be terminated by either party without cause,
and many of these

                                       38
<PAGE>

organizations are also involved with competing products. Certain ERP system
vendors have acquired supply chain planning software companies, products, or
functionality or have announced plans to develop new products or to incorporate
additional functionality into their current products that would compete with the
Company's products. Therefore, there can be no assurance that any organization
will continue its involvement with the Company and its products, and the loss of
important organizations could materially adversely affect the Company's results
of operations. In addition, if the Company is successful in selling products as
a result of these relationships, any material increase in the Company's indirect
sales as a percentage of total revenues would be likely to adversely affect the
Company's average selling prices and operating margins because of the lower unit
prices that the Company receives when selling through indirect channels.

Certain Risks Associated with Acquisitions

     From time to time, the Company has investigated potential candidates for
acquisition, joint venture opportunities, business combinations, or other
relationships on an ongoing basis and has engaged in the evaluation of, and
discussions with, one or more such candidates. Acquisitions involve the
integration of companies that have previously operated independently. The
company is not presently investigating potential candidates for acquisition.
However, in the event that in the future the Company should effect any
acquisitions, there can be no assurance that the Company will be able to
integrate these or any future employees or operations effectively or that the
Company will realize the expected benefits of any such transactions or business
combinations. In addition, there can be no assurance that the Company will not
experience the loss of key employees of any future acquired operations. The
process of integrating acquired employees and operations into the Company might
result in unanticipated operational difficulties and expenditures. As discussed
under the section titled "Purchased Research and Development" of this document,
the Company experienced certain difficulties with the integration of the
respective products and operations of ProMIRA and TYECIN. These difficulties
included difficulty in integrating the prior ProMIRA sales forces and delayed
releases for the in process technology acquired as part of the acquisition.  In
addition, as a result of the poor financial performance the Company experienced
in fiscal 1999, the technology acquired in conjunction with the TYECIN
acquisition was not integrated into the Company's solutions and revenues
generated from this technology have been nominal.

International Operations

     The Company currently conducts operations in a number of countries in
Europe, Asia/Pacific, and South America which requires significant management
attention and financial resources. If these operations are unable to generate,
maintain, or increase demand for the Company's products, then the Company's
operating results could be adversely affected. Certain risks are inherent in
international operations. Although the majority of the Company's contracts are
denominated in U.S. currency, most of the revenues from sales outside the United
States have been denominated in foreign currencies, typically the local currency
of the Company's business unit. The Company anticipates that the proportion of
its revenues denominated in foreign currencies will increase. A decrease in the
value of foreign currencies relative to the U.S. dollar could result in losses
from foreign currency fluctuations. In connection with transactions denominated
in foreign currency, the Company has taken steps to minimize the risks
associated with such foreign currency in the past and might take such steps in
similar circumstances in the future. With respect to the Company's international
sales that are U.S. dollar-denominated, currency fluctuations could make the
Company's products and services less price competitive. The Company's
international sales and operations might be adversely affected by the imposition

                                       39
<PAGE>

of government controls, changes in financial currencies (such as the unified
currency known as the European Monetary Unit), political and economic
instability, difficulties in staffing and managing international operations, and
general economic and currency exchange rate conditions in foreign countries.

Year 2000 Issues

     A discussion of certain risks relating to Year 2000 issues is set forth
above in this Item 7 under "Liquidity and Capital Resources-Year 2000
Compliance-Risks."

Risks Associated With the European Monetary Union ("EMU")

     The Company's foreign exchange exposure to legacy sovereign currencies of
the participating countries in the EMU will include foreign exchange exposures
to the Euro upon its introduction. To the extent hedging transactions are
entered for exposures after January 1, 1999, they will be denominated in Euros
as applicable. Although the Company is not aware of any material adverse
financial risk consequences of the change from legacy sovereign currencies to
the Euro, conversion may result in problems, which may have an adverse impact on
the Company's business since the Company may be required to incur unanticipated
expenses to remedy these problems.

Recent Senior Management Changes

     The Company has experienced recent significant changes in its senior
management team.  Joseph E. Broderick, Executive Vice President, Sales and
Marketing, and Keith J. Enstice, Senior Vice President, Global Consulting
Services, resigned in January 1999.  William M. Gibson, the Company's Chairman,
Chief Executive Officer and President, recently resigned the offices of Chief
Executive Officer and President; Gregory J. Owens became Chief Executive Officer
and President in April 1999.  Jeffrey L. Holmes and Eric J. Hughey have recently
been promoted to serve as Senior Vice President, North American Sales Operations
and Senior Vice President, Supply Chain Products, respectively.  Kenneth S.
Thompson, Executive Vice President, resigned in June 1999. The Company
anticipates that it will attract additional senior management in the near
future.

   The Company's success depends on the ability of its management team to work
together effectively.  The Company's business, revenues and financial condition
will be materially adversely effected if its new senior management team does not
manage the Company effectively or if it is unable to attract additional senior
management in a timely manner.

Dependence Upon Key Personnel

     The loss of the services of one or more of the Company's executive officers
could have a material adverse effect on the Company's business, operating
results, cash flows, and financial condition. The Company does not have
employment contracts with any of its executive officers, other than its Chief
Executive Officer and President, Gregory J. Owens and does not maintain key
person insurance. There can be no assurance that the Company will be able to
retain its key personnel.

     The Company's future success also depends on its continuing ability to
attract, assimilate, and retain highly qualified sales, technical, and
managerial personnel. Competition for such personnel is intense, and there can
be no assurance that the Company can attract, assimilate, or retain such
personnel in the future. In addition, the Company's financial performance has
resulted in a reduction in the Company's stock price and has reduced or
eliminated the financial benefit of stock options granted to employees. The
Company has experienced an increased rate of attrition in its employee base in
the past year. If the Company continues to lose talented personnel in key
positions and is unable to replace such personnel in a timely manner, the
Company's business, operating results, and financial condition could be
adversely affected.

                                       40
<PAGE>

Real Estate Commitments

     As more fully discussed above in Item 2, Properties, the Company entered
into an agreement to lease a new office building of approximately 300,000 square
feet. However, as a result of the restructuring, the Company no longer needs
additional space. As further disclosed above, the Company has been in
negotiations with the developer to terminate the agreement and the matter has
not been resolved.

Restructuring of Operations

     During the third and fourth quarters of fiscal 1999, the Company announced
and began to implement certain restructuring actions aimed at reducing its cost
structure and restoring sustainable profitability. Implementation of this
restructuring involved several risks, including the risk that by focusing on its
core products that meet the needs of the consumer-driven marketplace, the
Company has increased its dependence within these industries, reduced the sales
and consulting organizations, replaced members of its executive team, and
consolidated many of its office locations. Although the Company believes that
the actions it has taken in connection with the restructuring will contribute to
reductions in the Company's cost structure, there can be no assurance that such
actions will restore the Company to sustainable profitability. If the Company is
unable to effectively manage the changes in connection with the corporate-wide
restructuring, the Company's future operating results and financial condition
could be adversely impacted. Additional information relating to the
restructuring of operations may be found above, under "Strategy," and in Part
II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements
at Note 12 under the subheading "Restructuring of Operations," which information
is hereby incorporated by reference.

Stock Option Repricing

     In response to the poor performance of the Company's stock price, the
Company offered  to re-price employee stock options, other than those held by
executive officers or directors of the Company, effective January 29, 1999 to
bolster employee retention. The effect of this re-pricing resulted in
approximately 1.52 million shares being re-priced and the four year vesting
period starting over. The re-pricing may have a material adverse impact on
future financial performance based on the proposed amendment to the Accounting
Principals Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
which, if adopted without revision, could require the Company to record expenses
associated with the change in the price of these options.

Possible Volatility of Stock Price

     Factors such as announcements of new products or technological innovations
by the Company or its competitors, as well as quarterly variations in the
Company's operating results, have caused and may cause the market price of the
Company's common stock to fluctuate significantly. In addition, the stock market
in recent years has experienced price and volume fluctuations which have
particularly affected the market prices of many high technology stock issues and
which have often been unrelated or disproportionate to the operating performance
of such companies. These broad market fluctuations, as well as general economic
conditions, have at certain times adversely affected the market price of the
Company's common stock and are likely to do so in the future.

Forward-Looking Statements

     This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section of this Quarterly Report on Form 10-Q contains
certain forward-looking statements that are subject to a number of risks and
uncertainties. In addition, the Company may

                                       41
<PAGE>

publish forward-looking statements from time to time relating to such matters as
anticipated financial performance, business prospects and strategies, sales and
marketing efforts, technological developments, new products, research and
development activities, consulting services, and similar matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for forward-
looking statements. In order to comply with the terms of the safe harbor, the
Company notes that a variety of factors could cause the Company's actual results
and experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements in this
Quarterly Report or elsewhere. The risks and uncertainties that may affect the
business, operating results or financial condition of the Company include those
set forth above under "Factors that May Affect Future Results" and the
following:

     Revenues for any period depend on the number, size, and timing of license
agreements. The number, size, and timing of license agreements depends in part
on the ability of the Company to hire and thereafter to train, integrate, and
deploy its sales force effectively. The size and timing of license agreements is
difficult to forecast because software sales cycles are affected by the nature
of the transactions, including the breadth of the solution to be licensed and
the organizational and geographic scope of the licenses. In addition, the
number, size, and timing of license agreements also may be affected by certain
external factors such as general domestic and international business or economic
conditions, including the effects of such conditions on the Company's customers
and prospects, or competitors' actions. A small variation in the timing of
software licensing transactions, particularly near the end of any quarter or
year, can cause significant variations in software product license revenues in
any period.

     The Company believes that the market for supply chain planning software
continues to expand, although more slowly than in prior periods. However, if
market demand for the Company's products does not grow as rapidly as the Company
expects, revenue growth, margins, or both could be adversely affected. If
competitors make acquisitions of other competitors or establish cooperative
relationships among themselves or with third parties to enhance the ability of
their products to address the supply chain planning needs of prospects and
customers, or if Enterprise Resource Planning ("ERP") or other software vendors
that have announced plans to develop or incorporate functionality that could
compete with the Company's products successfully develop and market such
functionality, revenue growth could be adversely affected.

     There can be no assurance that the Company will be able to attract
complementary software vendors, consulting firms, or other organizations that
will be able to market the Company's products effectively or that will be
qualified to provide timely and cost-effective customer support and services. In
addition, there can be no assurance that a sufficient number of organizations
will continue their involvement with the Company and its products, and the loss
of current relationships with important organizations could materially adversely
affect the Company's results of operations.

     Statements regarding the Company's or management's beliefs or estimates as
to the adequacy and effectiveness of the Company's Year 2000 efforts when the
various phases or components of its Year 2000 efforts will be completed, and the
costs of such efforts, are based upon management's best estimates, which were
derived using certain assumptions, including the continued availability of
resources, adequacy and timeliness of third party modification or replacement
plans and other factors. Specific factors that might cause differences between
the estimates and actual results include, but are not limited to, the
availability and cost of personnel trained in these areas, the ability to locate
and correct all relevant computer code, timely responses to and corrections by
suppliers and other third parties, the ability to implement

                                       42
<PAGE>

interfaces between the new systems, and the systems not being replaced and
similar uncertainties. Due to the general uncertainty inherent in the Year 2000
problem resulting from the possible risks described in "Year 2000 Compliance"
above, there can be no assurance that the Company will be able to timely and
cost-effectively resolve problems associated with the Year 2000 issue that may
affect its operations and business or expose it to third party liability.

                                       43
<PAGE>

Item7A.  Quantitative and Qualitative Disclosures about Market Risks

     Foreign Currency.  In the year ended February 28, 1999, the Company
generated 30% of its revenues outside the United States and Canada.
International sales usually are made by the Company's foreign subsidiaries in
the local currencies and are denominated typically in U.S. dollars. However, the
expenses incurred by foreign subsidiaries are denominated in the local
currencies.

     In certain circumstances, the Company enters into foreign currency
contracts with banking institutions to protect large foreign currency
receivables against currency fluctuations. When the foreign currency receivable
is collected, the contract is liquidated and the foreign currency receivable is
converted to U.S. dollars.

     Interest rates. The Company manages its interest rate risk by maintaining
an investment portfolio of available-for-sale instruments with high credit
quality and relatively short average maturities. These instruments include, but
are not limited to, money-market instruments, bank time deposits, and taxable
and tax-advantaged variable rate and fixed rate obligations of corporations,
municipalities, and national, state, and local government agencies, in
accordance with an investment policy approved by the Company's Board of
Directors. These instruments are denominated in U.S. dollars. The fair value of
securities held at February 28, 1999 was approximately $22.6 million.

     The Company also holds cash balances in accounts with commercial banks in
the United States and foreign countries. These cash balances represent operating
balances only and are invested in short-term time deposits of the local bank.
Such operating cash balances held at banks outside the United States are
denominated in the local currency.

     Many of the Company's investments carry a degree of interest rate risk.
When interest rates fall, the Company's income from investments in variable-rate
securities declines. When interest rates rise, the fair market value of the
Company's investments in fixed-rate securities declines. The Company attempts to
mitigate risk by holding fixed-rate securities to maturity, but should its
liquidity needs force it to sell fixed-rate securities prior to maturity, the
Company may experience a loss of principal.

Item 8.  Financial Statements and Supplementary Data.

     The Company's consolidated financial statements and supplementary data,
together with the reports of Deloitte & Touche LLP, independent auditors, and
PricewaterhouseCoopers LLP, independent accountants, are included in Part IV of
this Form 10-K. Reference is made to the "Index to Consolidated Financial
Statements".

Item 9.  Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.

       None.

                                       44
<PAGE>

                                   PART III
                                   --------

Item 10.  Directors and Executive Officers of the Registrant.

     Reference is made to the information set forth in the definitive Proxy
Statement relating to the 1999 Annual Meeting of Stockholders (to be filed with
the Securities and Exchange Commission within 120 days after the end of the
Company's fiscal year ended February 28, 1998) (the "Proxy Statement") under the
caption "Election of Directors," and to the information set forth in Part I of
this Annual Report on Form 10-K regarding executive officers under the caption
"Item 4A. Executive Officers of the Registrant."


Item 11.  Executive Compensation.

     Reference is made to the information set forth in the Proxy Statement
under the caption "Executive Compensation."


Item 12.  Security Ownership of Certain Beneficial Owners and Management.

     Reference is made to the information set forth in the Proxy Statement
under the caption "Ownership of Manugistics Group, Inc. Stock."


Item 13.  Certain Relationships and Related Transactions.

     Reference is made to the information set forth in the Proxy Statement
under the caption "Certain Business Relationships."

                                       45
<PAGE>

                                    PART IV
                                    -------


Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a)  Documents filed as a part of this Report:

<TABLE>
<CAPTION>
     (1)  Financial Statements:
                                                                        Page Number
                                                                     In This Report
                                                                     --------------
          <S>                                                        <C>
          Report of Independent Auditors                                       F-1

          Report of Independent Accountants                                    F-2

          Consolidated Balance Sheets                                          F-3

          Consolidated Statements of Operations                                F-4

          Consolidated Statements of Stockholders' Equity                      F-5

          Consolidated Statements of Cash Flows                                F-6

          Notes to Consolidated Financial Statements                           F-7


     The financial statements listed above and the financial statement schedule
     listed below are filed as part of this Annual Report on Form 10-K.

     (2)  Financial Statement Schedule:

          (A)  Independent Auditor's Report on Schedule                        S-1
          (B)  Schedule II - Valuation and Qualifying Accounts                 S-2
</TABLE>

     Schedules other than the one listed above are omitted because they are not
     required or are not applicable, or the required information is shown in the
     consolidated financial statements or notes thereto contained in this Annual
     Report on Form 10-K.

                                       46
<PAGE>

     (3)  Exhibits

     The exhibits required by Item 601 of Regulation S-K are listed below and
are filed or incorporated by reference as part of this Annual Report on Form
10-K. Exhibits 10.1, 10.2, 10.11, 10.12, 10.15 and 10.28 through 10.31 are
management contracts or compensatory plans or arrangements required to be filed
as exhibits pursuant to Item 14(c) of this report.

<TABLE>
<CAPTION>
Number         Notes     Description
------         -----     -----------
<S>            <C>       <C>
3.1(a)          (A)      Amended and Restated Certificate of Incorporation of
                         the Company
3.1 (b)         (B)      Certificate of Retirement and Elimination (relating to
                         the Series A and Series B preferred stock of the
                         Company)
3.1(c)          (C)      Certificate of Amendment to Amended and Restated
                         Certificate of Incorporation of the Company (effective
                         July 29, 1997)
3.2             (A)      Amended and Restated By-Laws of the Company.

10.1            (I)      Employee Incentive Stock Option Plan of the Company, as
                         amended.

10.2            (I)      Employee Stock Option Plan of the Company, as amended.

10.3            (A)      Form of Notice of Grant of Option pursuant to the
                         Director Stock Option Plan. (previously identified as
                         Exhibit 10.4)

10.7            (A)      Lease Agreement dated May 1, 1992 between the Company
                         and GTE Realty Corporation.

10.7(a)         (E)      First Amendment to Lease Agreement dated July 19, 1993
                         between the Company and GTE Realty Corporation.

10.7(b)         (E)      Second Amendment to Lease Agreement dated April 13,
                         1994 between the Company and East Jefferson Associates.

10.7(c)         (E)      Third Amendment to Lease Agreement dated May 1, 1994
                         between the Company and East Jefferson Associates.

10.7(d)         (E)      Fourth Amendment to Lease Agreement dated February 27,
                         1995 between the Company and East Jefferson Associates.

10.7(e)         (K)      Fifth Amendment to Lease Agreement dated September 6,
                         1996 between the State of Maryland and the Company

10.7(f)         (K)      Sixth Amendment to Lease Agreement dated October 10,
                         1996 between the State of Maryland and the Company
</TABLE>


                                       47
<PAGE>

<TABLE>
<S>            <C>       <C>
10.7(g)        (K)       Seventh Amendment to Lease Agreement dated April 25,
                         1997 between the State of Maryland and the Company

10.8           (N)       Lease Agreement date March 26, 1998 Manugistics, Inc.
                         and Washingtonian North Associates Limited Partnership

10.11          (D)       Outside Directors Non-Qualified Stock Option Plan

10.12          (D)       Executive Incentive Stock Option Plan

10.15          (F)       Employee Stock Purchase Plan of the Company (previously
                         identified as Exhibit 10.14)

10.17          (G)       Sublease dated May 5, 1995 between the Company
                         N.A., as amended and NationsBank,

10.18          (H)       Agreement and Plan of Merger dated May 24, 1996 between
                         Avyx, Inc., Manugistics Acquisition, Inc. and the
                         Company

10.19          (H)       Consulting Agreement dated May 24, 1996 between The
                         Kendall Group, Inc. and the Company

10.20          (H)       Confidentiality, Non-Competition and Non-Solicitation
                         Agreement dated May 24, 1996 between the Company and
                         John K. Willoughby and JoAnne Gardner

10.21          (J)       Financing Agreement dated as of September 30, 1996
                         by and among the Company and NationsBank, N.A.

10.22          (J)       Form of Revolving Promissory Note dated September 30,
                         1996 by the Company in favor of NationsBank, N.A.

10.23          (K)       Sublease Agreement between CTA Incorporated and the
                         Company dated May 23, 1996

10.24          (K)(i)    Data Marketing and Guaranteed Revenue Agreement dated
                         March 7, 1997 between the Company and Information
                         Resources, Inc.

10.25          (K)(i)    Asset Purchase Agreement dated March 7, 1997 between
                         Manugistics, Inc., Manugistics Services, Inc., IRI
                         Logistics, Inc. and Information Resources, Inc.

10.26          (L)       Sale and Purchase Agreement dated 7th June 1997 between
                         M.C. Harrison, J.E. Harrison, Manugistics U.K. Limited
                         and the Company.

10.27          (M)       Stock Purchase Agreement dated February 13, 1998
                         between Manugistics
</TABLE>

                                       48
<PAGE>

<TABLE>
<S>                      <C>
                         Nova Scotia Company and ProMIRA Software Incorporated,
                         et al.

10.28                    Employment Agreement dated April 25, 1999, among the
                         Company, Manugistics, Inc. and with Gregory J. Owens,
                         Chief Executive Officer and President

10.29                    Termination of Employment Agreement dated November 18,
                         1998, between Manugistics, Inc. and David Roth

10.30                    Termination of Employment Agreement dated January 27,
                         1999, between Manugistics, Inc. and Keith Enstice

10.31                    Termination of Employment Agreement dated February 10,
                         1999, between Manugistics, Inc. and Joseph Broderick

21                       Subsidiaries of the Company

23.1                     Independent Auditors' Consent

23.2                     Consent of Independent Accountants

27                       Financial Data Schedule
</TABLE>

(A)  INCORPORATED BY REFERENCE FROM THE EXHIBITS TO THE COMPANY'S REGISTRATION
     STATEMENT ON FORM S-1 (NO. 33-65312).
(B)  INCORPORATED BY REFERENCE TO 4.1(A) TO THE COMPANY'S REGISTRATION STATEMENT
     ON FORM S-3 (REG. NO. 333-31949)
(C)  INCORPORTED BY REFERENCE TO EXHIBIT 4.1 (b) TO THE COMPANY'S REGISTRATION
     STATEMENT ON FORM S-3 (REG. NO. 333-31949)
(D)  INCORPORATED BY REFERENCE FROM THE EXHIBITS TO THE COMPANY'S QUARTERLY
     REPORT ON FORM 10-Q FOR THE QUARTER ENDED AUGUST 31, 1994.
(E)  INCORPORATED BY REFERENCE FROM THE EXHIBITS TO THE COMPANY'S ANNUAL REPORT
     ON FORM 10-K FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1995.
(F)  INCORPORATED BY REFERENCE FROM THE EXHIBITS TO THE COMPANY'S QUARTERLY
     REPORT ON FORM 10-Q FOR THE QUARTER ENDED AUGUST 31, 1995.
(G)  INCORPORATED BY REFERENCE FROM THE EXHIBITRS TO THE COPANY'S ANNUAL REPORT
     ON FORM 10-K FOR THE FISCAL YEAR ENDED FEBRUARY 29, 1996.
(H)  INCORPORATED BY REFERENCE FROM THE EXHIBITS TO THE COMPANY'S QUARTERLY
     REPORT ON FORM 10-Q FOR THE QUARTER ENDED MAY 31, 1996.
(I)  INCORPORATED BY REFERENCE FROM THE EXHIBITS TO THE COMPANY'S DEFINITIVE
     PROXY STATEMENT RELATING TO THE 1996 ANNUAL MEETING OF SHAREHOLDERS DATED
     JUNE 20, 1996.
(J)  INCORPORATED BY REFERENCE FROM THE EXHIBITS TO THE COMPANY'S QUARTERLY
     REPORT ON FORM 10-Q FOR THE QUARTER ENDED NOVEMBER 30, 1996.
(K)  INCORPORATED BY REFERENCE FROM THE EXHIBITS TO THE COMPANY'S ANNUAL REPORT
     ON FORM 10-K FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1997.
(L)  INCORPORATED BY REFERENCE FROM THE EXHIBITS TO THE COMPANY'S QUARTERLY
     REPORT ON FORM 10-Q FOR THE QUARTER ENDED MAY 31, 1997.
(M)  INCORPORATED BY REFERENCE FROM THE EXHIBITS TO THE COMPANY'S CURRENT REPORT
     ON FORM 8-K DATED MARCH 2, 1998
(N)  INCORPORATED BY REFERENCE FROM THE EXHIBITS TO THE COMPANY'S ANNUAL REPORT
     ON FORM 10-K FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1998.

                                       49
<PAGE>

(i)  CONFIDENTIAL TREATMENT PREVIOUSLY GRANTED FOR CERTAIN PORTIONS OF THIS
     EXHIBIT.


(b)  Reports on Form 8-K

1.   On December 23, 1998, the Company filed a Current Report on Form 8-K
     following its issuance of a press release on December 22, 1998, announcing
     its financial results for its third quarter ended November 30, 1998, and
     its continuing preliminary discussions with other companies concerning a
     potential business combination.

2.   On January 19, 1999, the Company filed a Current Report on Form 8-K
     following its issuance of a press release on January 19, 1999, announcing
     its plans to reorganize and move forward as an independent software vendor,
     and that it is no longer engaged in the previously announced discussions
     with other companies concerning a potential business combination.

3.   On February 5, 1999, the Company filed a Current Report on Form 8-K
     following its issuance of two press releases on February 3, 1999, which
     respectively announced: (i) the completion of its option repricing program,
     which had previously been approved by the shareholders of the Company at a
     Special Meeting held on December 4, 1998 for employees other than executive
     officers and directors; and (ii) its response to an action commenced
     against the Company by Information Resources, Inc. in state court in
     Illinois seeking damages for, among other things, an alleged breach of a
     marketing agreement.

(c)  Exhibits

     See the response to Item 14(a)(3) above.

(d)  Financial Statement Schedules

     The financial statement schedule required to be filed is listed in the
     response to Item 14(a)(2) above, and appears on page S-2 of this report.

                                       50
<PAGE>

                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on June 16, 1999.

MANUGISTICS GROUP, INC.
(Registrant)

By:/s/ Gregory J. Owens
   ---------------------------
Gregory J. Owens
President, Chief Executive Officer
and Chairman of the Board of Directors

     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 June 16, 1999.


/s/ William M. Gibson                      /s/ Peter Q. Repetti
---------------------                      ----------------------
William M. Gibson                          Peter Q. Repetti
Chairman of the Board and Director         Senior Vice President and Chief
                                           Financial Officer
                                           (Principal financial officer and
/s/ J. Michael Cline                       principal accounting officer)
--------------------
J. Michael Cline                           /s/ Jack A. Arnow
Director                                   -------------------
                                           Jack A. Arnow
                                           Director
/s/ Joseph H. Jacovini
----------------------
Joseph H. Jacovini                         /s/ Lynn C. Fritz
Director                                   --------------------
                                           Lynn C. Fritz
                                           Director
/s/ Thomas A. Skelton
----------------------
Thomas A. Skelton                          /s/ William G. Nelson
Director                                   -----------------------
                                           William G. Nelson
                                           Director







                                       51
<PAGE>

                        REPORT OF INDEPENDENT AUDITORS

To the Stockholders and Board of Directors of
 Manugistics Group, Inc.:

  We have audited the accompanying consolidated balance sheets of Manugistics
Group, Inc. (the Company) and its subsidiaries as of February 28, 1999 and 1998,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended February 28, 1999.
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. The consolidated financial statements give retroactive effect to
the merger of the Company and TYECIN Systems, Inc. ("TYECIN"), which has been
accounted for as a pooling of interests as described in Note 11 to the
consolidated financial statements. We did not audit the consolidated balance
sheet of TYECIN as of December 31, 1997, or the related statements of income,
stockholders' equity, and cash flows of TYECIN for the two years in the period
ended December 31, 1997, which consolidated statements reflect total assets of
$2,971,400 as of December 31, 1997 and total revenues of $4,597,200 and
$5,077,000 for the two years ended December 31, 1997, respectively. Those
consolidated statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to the amounts included
for TYECIN for 1997 and 1996 is based solely on the report of such other
auditors.

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

  In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company and its subsidiaries at
February 28, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended February 28, 1999 in
conformity with generally accepted accounting principles.


DELOITTE & TOUCHE LLP
Washington, D.C.
April 7, 1999 (except Note 16, as to which the date is April 25, 1999)


                                      F-1

<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS
                           FOR TYECIN SYSTEMS, INC.


To the Board of Directors and Shareholders of
 TYECIN Systems, Inc.:

  In our opinion, the consolidated balance sheet and the related consolidated
statements of income, of shareholders' equity and of cash flows of TYECIN
Systems, Inc. and its subsidiary (not presented separately herein) present
fairly, in all material respects, their financial position at December 31, 1997,
and the results of their operation and their cash flows for each of the two
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles. These consolidated financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
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 audit provides a
reasonable basis for the opinion expressed above.


Price Waterhouse LLP
San Jose, California
March 6, 1998, except as to Note 11, which
 is as of June 1, 1998

                                      F-2

<PAGE>

                   MANUGISTICS GROUP, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                       (in thousands, except share data)


<TABLE>
<CAPTION>
                                                                                         February 28,
                                                                                 1999                   1998
                                                                                 ----                   ----
<S>                                                                     <C>                      <C>
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents                                             $           20,725       $          19,891
  Marketable securities                                                             22,637                  62,246
  Accounts receivable, net of allowance for doubtful accounts of
     $6,299 and $2,099 at February 28, 1999 and 1998, respectively                  50,987                  59,584
  Current portion of deferred tax asset                                              4,907                   1,693
  Other current assets                                                               8,904                   3,525
                                                                        ------------------       -----------------
            Total current assets                                                   108,160                 146,939
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED
  DEPRECIATION                                                                      21,832                  21,142
NONCURRENT ASSETS:
  Software development costs, net of accumulated amortization                       20,540                  22,986
  Intangible assets, net of accumulated amortization                                 9,382                  14,660
  Deferred tax asset                                                                 9,240                  17,593
  Other non-current assets                                                           2,182                   1,895
                                                                        ------------------       -----------------
TOTAL                                                                   $          171,336       $         225,215
                                                                        ==================       =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable                                                      $            7,148       $           8,918
  Accrued compensation                                                               7,815                  12,419
  Line of credit                                                                     9,500                      --
  Deferred revenue                                                                  24,710                  18,546
  Current portion of long-term liabilities                                           1,028                     598
  Other current liabilities                                                         13,032                  10,064
  Restructuring accrual                                                             13,789                      --
                                                                        ------------------       -----------------
            Total current liabilities                                               77,022                  50,545
LONG-TERM LIABILITIES                                                                  454                     924
LONG-TERM RESTRUCTURING ACCRUAL                                                      8,138                      --
COMMITMENTS AND CONTINGENCIES (Note 6)                                                  --                      --
STOCKHOLDERS' EQUITY:
  Preferred stock                                                                       --                      --
  Common stock, $.002 par value per share; 100,000,000 shares
     authorized; 27,705,382 and 26,719,681 shares issued and
     26,952,872 and 25,967,171 shares outstanding at February 28,
     1999 and 1998, respectively                                                        55                      53
  Additional paid-in capital                                                       179,996                 171,075
  Treasury stock - 752,510 shares, at cost                                            (717)                   (717)
  Accumulated other comprehensive (loss) income                                       (354)                    233
  Retained (deficit) earnings                                                      (93,258)                  3,102
                                                                        ------------------       -----------------
          Total stockholders' equity                                                85,722                 173,746
                                                                        ------------------       -----------------
TOTAL                                                                   $          171,336       $         225,215
                                                                        ==================       =================
</TABLE>

         See accompanying notes to consolidated financial statements.

                                      F-3

<PAGE>

                   MANUGISTICS GROUP, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                   Year Ended February 28,
                                                                         1999                1998              1997
                                                                         ----                ----              ----
<S>                                                            <C>                 <C>                <C>
REVENUES:
  License fees                                                       $ 73,802            $107,547          $ 54,342
  Consulting, maintenance, and other services                         103,762              72,716            45,865
                                                               --------------      --------------     -------------
       Total revenues                                                 177,564             180,263           100,207

OPERATING EXPENSES:
  Cost of license fees                                                 13,415              11,102             5,011
  Cost of consulting, maintenance, and other services                  50,585              33,213            19,618
  Sales and marketing                                                 103,006              66,228            34,961
  Product development                                                  49,389              32,794            18,889
  General and administrative                                           19,828              14,639             9,344
  Acquisition-related expenses                                          3,095                  --                --
  Restructuring expenses                                               33,775                  --                --
  Purchased research and development                                       --              47,340             3,697
                                                               --------------      --------------     -------------
       Total operating expenses                                       273,093             205,316            91,520
                                                               --------------      --------------     -------------

(LOSS) INCOME FROM OPERATIONS                                         (95,529)            (25,053)            8,687
                                                               --------------       -------------     -------------
OTHER INCOME - NET                                                      2,362               2,863             1,047
                                                               --------------      --------------     -------------
(LOSS) INCOME BEFORE INCOME TAXES                                     (93,167)            (22,190)            9,734

PROVISION (BENEFIT) FOR INCOME TAXES                                    2,945              (9,025)            5,077
                                                               --------------      --------------     -------------
NET (LOSS) INCOME                                                    $(96,112)           $(13,165)         $  4,657
                                                               ==============      ==============     =============
BASIC (LOSS) INCOME PER SHARE                                        $  (3.64)           $  (0.56)         $   0.22
                                                               ==============      ==============     =============
SHARES USED IN BASIC SHARE COMPUTATION                                 26,402              23,484            21,657
                                                               ==============      ==============     =============
DILUTED (LOSS) INCOME PER SHARE                                      $  (3.64)           $  (0.56)         $   0.20
                                                               ==============      ==============     =============
SHARES USED IN DILUTED SHARE COMPUTATION                               26,402              23,484            23,159
                                                               ==============      ==============     =============

COMPREHENSIVE (LOSS) INCOME:
  Net (loss) income                                                  $(96,112)           $(13,165)            4,657
                                                               --------------      --------------     -------------

Other comprehensive (loss) income, net of tax:
  Foreign currency translation adjustments                               (701)                (94)              554
  Unrealized gains (losses) or securities                                 114                (132)               --
                                                               --------------      --------------     -------------

Other comprehensive (loss) income                                        (587)               (226)              554
                                                               --------------      --------------     -------------
       Total comprehensive (loss) income                             $(96,699)           $(13,391)         $  5,211
                                                               ==============      ==============     =============

</TABLE>

         See accompanying notes to consolidated financial statements.

                                      F-4

<PAGE>

                   MANUGISTICS GROUP, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                (in thousands)


<TABLE>
<CAPTION>
                                              Common Stock                             Accumulated
                                   --------------------------------
                                                                                          Other          Retained
                                                  Par       Paid-in      Treasury     Comprehensive      Earnings
                                      Shares     Value      Capital        Stock      Gains (Losses)     (Deficit)     Total
                                   ----------------------------------------------------------------------------------------------
<S>                                <C>           <C>        <C>          <C>          <C>                <C>           <C>
BALANCE, MARCH 1, 1996               11,125      $  22      $ 33,134       $ (744)       $     (95)      $ 11,610      $ 43,927
  Issuance of common stock               50         --           733           --               --             --           733
  Exercise of stock options             336          1         1,906           --               --             --         1,907
  Tax benefit of options exercised       --         --         2,571           --               --             --         2,571
  Fair value of options issued           --         --           217           --               --             --           217
  Compensation expense                   --         --            69           --               --             --            69
  Issuance of treasury stock             --         --           211           27               --             --           238
  Translation adjustment                 --         --            --           --              554             --           554
  Net income                             --         --            --           --               --          4,657         4,657
  Two-for-one stock split            11,214         22           (22)          --               --             --            --
                                   ----------------------------------------------------------------------------------------------
BALANCE, FEBRUARY 28, 1997           22,725         45        38,819         (717)             459         16,267        54,873
  Issuance of common stock, net of
   issuance costs of $652             3,137          6       120,110           --               --             --       120,116
  Issuance of stock options in
   connection with acquisitions          --         --         1,081           --               --             --         1,081
  Exercise of stock options             858          2         3,334           --               --             --         3,336
  Tax benefit of options exercised       --         --         7,731           --               --             --         7,731
  Translation adjustment                 --         --            --           --              (94)            --           (94)
  Unrealized loss on marketable
   Securities                            --         --            --           --             (132)            --          (132)
  Net loss                               --         --            --           --               --        (13,165)      (13,165)
                                   ----------------------------------------------------------------------------------------------
BALANCE, FEBRUARY 28, 1998           26,720         53       171,075         (717)             233          3,102       173,746
  TYECIN conforming year end
     Adjustments                         --         --            --           --               --           (248)         (248)
  Issuance of common stock              194          1         2,745           --               --             --         2,746
  Exercise of stock options             791          1         4,248           --               --             --         4,249
  Tax benefit of options-exercised       --         --         1,928           --               --             --         1,928
  Translation adjustment                 --         --            --           --             (701)            --          (701)
  Unrealized gain on marketable
     Securities                          --         --            --           --              114             --           114
  Net loss                               --         --            --           --               --        (96,112)      (96,112)
                                   ----------------------------------------------------------------------------------------------
BALANCE, FEBRUARY 28, 1999           27,705       $ 55      $179,996       $ (717)            (354)      $(93,258)     $ 85,722
                                   ==============================================================================================
</TABLE>

         See accompanying notes to consolidated financial statements.

                                      F-5
<PAGE>

                   MANUGISTICS GROUP, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (in thousands, except per share data)


<TABLE>
<CAPTION>
                                                                                Year ended February 28,
                                                                     1999                1998                  1997
                                                                     ----                ----                  ----
<S>                                                            <C>                 <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net (loss) income                                            $     (96,112)      $     (13,165)      $        4,657
  Adjustments to reconcile net (loss) income to net cash
   (used in) provided by operating activities:
  Depreciation and amortization                                       24,321              16,150                8,110
  Write-off of purchased research and development                         --              47,340                3,697
  Restructuring provision                                             33,775                  --                   --
  Allowances for doubtful accounts                                     4,200               1,510                2,529
  Deferred income tax assets                                           5,139             (19,574)                (479)
  Tax benefit of stock options exercised                               1,928               7,731                2,571
  Loss on disposal of property and intangibles                           488                  --                   --
  Other                                                                  994                 (13)                 108
  Changes in assets and liabilities:
     Accounts receivable                                               4,397             (20,908)             (20,720)
     Other current assets                                             (5,379)             (2,023)                  54
     Other non-current assets                                           (287)               (503)                  94
     Accounts payable and accrued expenses                             1,623               5,777                 (157)
     Accrued compensation                                             (4,604)              6,016                4,878
     Deferred revenue                                                  6,164               2,470                7,128
     Restructuring accrual                                            (4,442)                 --                  --
     Income taxes payable                                                 --                (716)               1,198
                                                               -------------       -------------       --------------
       Net cash (used in) provided by operating activities           (27,795)             30,092               13,668
                                                               -------------       -------------       --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisitions                                                            --              (9,637)              (3,582)
  Sales of marketable securities                                      48,436              46,865                7,933
  Purchase of marketable securities and long-term
     investments                                                      (8,827)            (96,347)              (3,006)
  Purchase of property and equipment                                 (16,402)            (16,011)              (7,284)
  Capitalization of internally developed software costs                 (193)                 --                   --
  Capitalization of software development costs                       (10,075)            (10,274)              (6,843)
  Purchase of software licenses                                         (582)               (816)                (878)
  Net change in cash due to conforming year ends                        (450)                 --                   --
                                                               -------------       -------------       --------------
     Net cash provided by (used in) investing activities              11,907             (86,220)             (13,660)
                                                               -------------       -------------       --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Line of credit borrowings                                            9,500                  --                   --
  Payments on long-term obligations                                     (246)                 58                 (273)
  Proceeds from sale of common stock, net of issuance
    costs                                                              2,745              63,770                  735
  Proceeds from exercise of stock options                              4,474               3,334                1,907
                                                               -------------       -------------       --------------
     Net cash provided by financing activities                        16,473              67,162                2,369
                                                               -------------       -------------       --------------
EFFECTS OF EXCHANGE RATES ON CASH
  BALANCES                                                               249                  23                  574
                                                               -------------       -------------       --------------
NET INCREASE IN CASH                                                     834              11,057                2,951
CASH  AND CASH EQUIVALENTS, BEGINNING OF
   PERIOD                                                             19,891               8,834                5,883
                                                               -------------       -------------       --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                       $      20,725       $      19,891       $        8,834
                                                               =============       =============       ==============
</TABLE>

         See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>

                   MANUGISTICS GROUP, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      THREE YEARS ENDED FEBRUARY 28, 1999

1.  The Company and Significant Accounting Policies

The Company

  Manugistics Group, Inc. ("Manugistics" or the "Company") designs, develops,
markets, licenses, and supports an integrated suite of strategic, tactical, and
operational supply chain planning software products that address the four key
operational areas of supply chain planning:  demand planning, supply planning,
manufacturing scheduling, and transportation management.  In addition, the
Company provides services to its clients to re-engineer their supply chain
processes, implement the Company's software, and provide related training and
maintenance services. The Company also markets and supports STATGRAPHICS, a
software application containing a comprehensive set of statistical tools to
control, manage, and improve the quality of production processes in
manufacturing companies. The Company's business is predominately based in the
United States and Europe with a increasing presence in Asia/Pacific and South
America.

  The Company was incorporated in Delaware in 1986 to acquire Manugistics, Inc.
(then known as STSC, Inc.), which was a subsidiary of Continental Telecom of
Atlanta, Georgia, and which is now the principal operating subsidiary of the
Company. The Company completed its initial public offering of Common Stock in
August 1993 and completed another underwritten offering of its Common Stock in
August 1997.

Basis of Presentation

  The consolidated financial statements include the accounts of Manugistics
Group, Inc., its wholly-owned subsidiaries, and its sixty percent (60%) owned
subsidiary TYECIN-INNOTECH, a Japanese corporation. All significant intercompany
transactions and balances have been eliminated. Certain prior year amounts have
been reclassified for comparability with the current year's financial statement
presentation.

  Effective June 1, 1998, the Company acquired TYECIN Systems, Inc. ("TYECIN")
by merger and accounted for the transaction as a pooling of interests.
Accordingly, all financial information included in these financial statements
gives retroactive effect to the combination for all periods presented.
Previously, TYECIN's year end was December 31, 1997.  Effective March 1, 1998,
TYECIN's year end was changed to February 28.  During the two month period
January and February 1998, TYECIN recorded revenues of approximately $609,000
and expenses of approximately $857,000. The resulting net loss of approximately
$248,000 is directly reflected in the retained earnings (deficit) in the
Company's consolidated financial statements.


                                      F-7


<PAGE>

Use of Estimates

  The preparation of consolidated financial statements in conformity with
generally accepted accounting principles ("GAAP") requires management to make
estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period.  Actual
results may differ from these estimates.

Cash and Cash Equivalents

  Cash and cash equivalents are comprised principally of amounts in operating
accounts, cash on hand, money market investments and other short-term
instruments, stated at cost, which approximate market value, with original
maturities of three months or less.

Marketable Securities

  The Company's short-term marketable securities are classified as "available-
for-sale."  These securities are recorded at fair value with unrealized gains
and losses as a component of stockholders' equity and comprehensive income.
Realized gains and losses on available-for-sale securities are computed using
the specific identification method. On February 28, 1999 and 1998, marketable
securities consisted of investments in municipal bonds and other short-term
investments which generally mature in one year or less.

Concentration of Credit Risk

  Financial instruments which potentially subject the Company to concentrations
of credit risk consist primarily of cash and cash equivalents, investments in
marketable securities, and accounts receivable.  The Company has policies that
limit investments to investment grade securities and limit the amount of credit
exposure to any one issuer. The Company performs ongoing credit evaluations of
its customers and maintains an allowance for potential losses, but does not
require collateral or other security to support clients' receivables.  The
Company's credit risk is also further mitigated because its customer base is
diversified both geographically and by industry.

Property and Equipment

  Property and equipment is stated at cost.  Furniture and fixtures are
depreciated on a straight-line basis over three to ten years.  Computer
equipment and software are depreciated on a straight-line basis over two years.
Leasehold improvements are amortized over the shorter of the lease term or the
useful life of the improvements.

Capitalized Software

  In accordance with Statement of Financial Accounting Standards No. 86 ("SFAS
86"), "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed," software development costs are expensed as incurred until
technological feasibility has been established, at which time such costs are
capitalized until the product is available for general release to clients.

Intangibles

  Intangibles include goodwill, customer lists, intellectual property, and
other.  Goodwill, equal to the fair value of consideration paid in excess of the
fair value of the net assets purchased, has been recorded in conjunction with
several of the Company's purchase business combinations and is being amortized
on a straight-line basis over a period of five years. Customer lists acquired in
conjunction with certain of the Company's purchase business combinations are
amortized using the double declining balance method over a period of 5 years
(see Note 11). Intellectual property and other intangibles are amortized on a
straight-line basis over a period of two to five years.


                                      F-8
<PAGE>

Internally Developed Software

       Effective fiscal 1999, certain costs to develop or obtain internal use
    software are capitalized in accordance with American Institute of Certified
    Public Accountants ("AICPA") Statement of Position No. 98-1 ("SOP 98-1"),
    "Accounting for the Costs of Computer Software Developed or Obtained for
    Internal Use." These capitalized costs are amortized on a straight-line
    basis over a period of two years after completion or acquisition of the
    software.

    Impairment of Long-Lived Assets

       The Company reviews its long-lived assets, including property and
    equipment, and intangibles, for impairment whenever events or changes in
    circumstances indicate that the carrying amount of the assets may not be
    fully recoverable. In performing an evaluation of recoverability, the
    estimated future undiscounted net cash flows of the assets are compared to
    the assets' carrying amount to determine if a write down is required.

    Fair Values of Financial Instruments

       The carrying values of cash and cash equivalents, marketable securities,
    accounts receivable, accounts payable, and the line of credit approximate
    fair value due to the short maturities of such instruments. The carrying
    value of long-term debt approximates fair value based on current rates
    offered to the Company for debt with similar collateral and guarantees, if
    any, and maturities. The fair value of foreign currency contracts (used for
    hedging purposes) is estimated by obtaining quotes from brokers.

    Foreign Currency Translation

       Assets and liabilities of the Company's international subsidiaries are
    translated at the exchange rate in effect on the balance sheet date. The
    related revenues and expenses are translated using the average exchange rate
    in effect during the reporting period. Foreign currency translation
    adjustments are disclosed as a separate component of stockholders' equity
    and comprehensive income.

    Revenue Recognition

       Prior to March 1, 1998, the Company recognized revenue in accordance with
    the provisions of the AICPA Statement of Position No. 91-1 ("SOP 91-1"),
    "Software Revenue Recognition." Software license revenues from supply chain
    planning products were recognized upon the customer's execution of a
    noncancellable license agreement and shipment of the software, provided that
    no significant vendor obligations remained outstanding, the license fee was
    fixed and amounts were due within one year and collection was considered
    probable by management. For transactions entered into after February 28,
    1998, the Company recognized revenue in accordance with the provisions of
    AICPA Statement of Position No. 97-2 ("SOP 97-2"), "Software Revenue
    Recognition," which provides guidance in applying generally accepted
    accounting principles in recognizing revenues on software transactions and
    supersedes SOP 91-1. SOP 97-2 requires that the Company have an executed
    software license agreement, the license fee be fixed and determinable, and
    collection be deemed probable by management in order to record software
    license revenue. SOP 97-2 also requires revenues earned on software
    arrangements involving multiple elements to be allocated to each element
    based on vendor specific objective evidence of the relative fair values of
    the elements. If a vendor does not have evidence of the fair value for all
    elements in a multiple-element arrangement, all revenue from the
    arrangement is deferred until such evidence exists or until all elements
    are delivered.

       Consulting service revenues are recognized when the services are
    provided, generally on a time and materials basis. Consulting service
    revenues consist primarily of implementation and training services related
    to the installation of the Company's products and do not include significant
    customization to or development of the underlying software code. Maintenance
    revenues are deferred and recognized ratably over the term of the
    maintenance contract, typically twelve months.


                                      F-9
<PAGE>

    Income Taxes

       The provision for income taxes is based on income recognized for
    financial reporting purposes and includes the effects of temporary
    differences between such income and income recognized for income tax
    purposes. Deferred income taxes reflect the net tax effects of temporary
    differences between carrying amounts of assets and liabilities for financial
    reporting purposes and the amounts used for income tax purposes. Valuation
    allowances are recorded to reduce deferred tax assets when it is more likely
    than not that a tax benefit will not be realized.

    Comprehensive (Loss) Income

       In fiscal 1999, the Company adopted Statement of Financial Accounting
    Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income." This
    statement establishes the rules for the reporting of comprehensive (loss)
    income and its components. The Company's comprehensive (loss) income
    includes net (loss) income, foreign currency translation adjustments, and
    unrealized gains (losses) on short-term investments and is presented in the
    Consolidated Statements of Operations. The adoption of SFAS No. 130 had no
    impact on total stockholders' equity. Prior year financial statements have
    been reclassified to conform to the SFAS No. 130 requirements.

    Net (Loss) Income Per Share

       Basic (loss) income per share is computed using the weighted average
    number of shares of common stock outstanding. Diluted income per share is
    computed using the weighted average number of shares of common stock and,
    when dilutive, common equivalent shares from options to purchase common
    stock using the treasury stock method.

    Stock-Based Compensation Plans

       The Company accounts for its stock-based compensation plans in accordance
    with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
    Stock Issued to Employees" using the intrinsic value-based method of
    accounting. The Company has made the pro forma net income and earnings per
    share disclosures, calculated as if the Company accounted for its stock-
    based compensation plan using the fair value-based method of accounting in
    accordance with the provisions as required by Statement of Financial
    Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
    Compensation" in Note 7.

    New Accounting Pronouncements

       In June 1998, the Financial Accounting Standards Board (FASB) issued
    Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"),
    "Accounting for Derivatives and Hedging Activities." In May 1999, the FASB
    voted to defer the implementation of SFAS No. 133 for one year. SFAS No. 133
    establishes accounting and reporting standards for derivative instruments,
    including certain derivative instruments embedded in other contracts
    (collectively referred to as derivatives), and for hedging activities. It
    requires that an entity recognize all derivatives as either assets or
    liabilities in the balance sheet and measure those instruments at fair
    value. If certain conditions are met, a derivative may be specifically
    designated and accounted for as: (a) a hedge of the exposure to changes in
    the fair value of a recognized asset or liability or an unrecognized firm
    commitment, (b) a hedge of the exposure to variable cash flows of a
    forecasted transaction, or (c) a hedge of the foreign currency exposure of a
    net investment in a foreign operation, an unrecognized firm commitment, an
    available-for-sale security, or a foreign-currency-denominated forecasted
    transaction. For a derivative not designated as a hedging instrument,
    changes in the fair value of the derivative are recognized in earnings in
    the period of change. This statement is expected to be effective for all
    annual and interim periods beginning after June 15, 2000. Management does
    not presently believe the adoption of SFAS No. 133 will have a material
    effect on the Company's consolidated financial position or results of
    operations in fiscal 2000.

       In August 1996, the Financial Accounting Standards Board added a project
    to its agenda to address significant outstanding practice issues related to
    accounting for stock-based compensation under

                                     F-10

<PAGE>

    Accounting Principals Board Opinion No. 25, "Accounting for Stock Issued to
    Employees." The proposed effective date would be the issuance of the final
    interpretation, which is expected to be in September 1999. If adopted, the
    interpretation would be applied prospectively but would cover events that
    occurred after December 15, 1998. There would be no effect on financial
    statements for the period prior to the effective date of the final
    interpretation. If adopted without revision, the Company would be required
    to record compensation expense associated with the change in the exercise
    price of stock options granted to employees which could cause a material,
    adverse impact on the Company's financial condition.

2.  PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                    February 28
                                                1999            1998
                                             ----------      ----------
    <S>                                      <C>             <C>
    Computer equipment and software          $   26,913      $   22,130
    Office furniture and equipment                6,921           6,585
    Leasehold improvements                        9,740           6,877
                                             ----------      ----------
          Total                                  43,574          35,592
    Less: accumulated depreciation              (21,742)        (14,450)
                                             ----------      ----------
                                             $   21,832      $   21,142
                                             ==========      ==========
</TABLE>

3.  SOFTWARE DEVELOPMENT COSTS

       The Company capitalizes costs incurred in the development of its software
    products. Software development costs include certain internally developed
    costs, software costs purchased from third parties in connection with
    acquisitions (if the related software product under development has reached
    technological feasibility or if there are alternative future uses for the
    purchased software, provided the capitalized amounts will be realized over a
    period not exceeding five years), and purchased software license costs for
    products used in the development of the Company's products. Costs incurred
    prior to establishing technological feasibility are charged to product
    development expense as incurred. Software development costs are amortized at
    the greater of the amount computed using either (a) the straight-line method
    over the estimated economic life of the product, commencing with the date
    the product is first available for general release, or (b) the ratio that
    current gross revenues bears to the total current and anticipated future
    gross revenues. Generally, an economic life of two to five years is assigned
    to capitalized software development costs.

       The Company capitalized software development costs and purchased licensed
    software to be resold of $10,657,000, $11,090,000, and $7,721,000, and
    recorded amortization expense of $11,014,000, $8,277,000, and $3,874,000 for
    fiscal 1999, 1998, and 1997, respectively. In addition, an additional
    $9,940,000 is recorded in the fiscal 1998 balance for purchased software
    development costs capitalized in connection with the acquisition of ProMIRA
    Software Inc. (see Note 11).

       The amortization expense amounts for fiscal 1999, 1998 and 1997 include
    write-offs totaling approximately $1,432,000, $1,897,000 and $312,000,
    respectively, of previously capitalized internal software development costs.
    These capitalized costs were deemed to exceed their future net realizable
    value as a result of new technologies developed by the Company and acquired
    in connection with acquisitions.

4.  INTANGIBLES

       Intangibles consists of the following (in thousands):



                                     F-11
<PAGE>

<TABLE>
<CAPTION>
                                                        February 28,
                                                     1999           1998
    <S>                                           <C>            <C>
    Goodwill                                      $  12,135      $  16,007
    Customer lists                                      214            214
    Intellectual property                               750          1,120
    Non-compete agreements                              217            217
    Internally developed software                       193             --
    Other                                                46             74
                                                  ---------      ---------
          Total                                      13,555         17,632
    Less: accumulated amortization                   (4,173)        (2,972)
                                                  ---------      ---------
                                                  $   9,382      $  14,660
                                                  =========      =========
</TABLE>

       In January 1999, the Company wrote off $1,354,000 of goodwill
 representing a gross balance of $3,872,000 and accumulated amortization of
 $2,518,000 related to the acquisitions of certain assets of IRI and Marketing
 Systems, Inc. The Company determined that goodwill balances were impaired such
 that undiscounted cash flows pertaining to the goodwill could not support the
 goodwill balance recorded.

5.  DEBT AND LONG-TERM LIABILITIES

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

<TABLE>
<CAPTION>
                                                        February 28,
                                                    1999           1998
                                                  --------       --------
    <S>                                           <C>            <C>
    Notes payable                                 $    987       $    499
    Capital lease obligations (see Note 6)              64            230
    Deferred rent                                      431            516
                                                  --------       --------
    Total                                         $  1,482       $  1,245
    Less - current portion                          (1,028)          (598)
                                                  --------       --------
    Subtotal                                      $    454       $    647
    Other long-term liabilities                         --            277
                                                  --------       --------
    Total                                         $    454       $    924
                                                  ========       ========
</TABLE>

       Notes Payable - The Company has several outstanding notes payable which
    accrue interest at rates ranging from 1.93% to 6.25% at February 28, 1999.
    Principal repayment requirements for each of the four succeeding years
    beginning March 1, 1999 are as follows: $865,000 for 1999 and $122,000 for
    2000.

       Line of Credit - The Company has an unsecured committed revolving credit
    facility with a commercial bank. Under the terms of the facility, the
    Company may request advances in an aggregate amount of up to $10,000,000 in
    principal, to include letters of credit. The Company may make borrowings
    under the facility for short-term working capital purposes or for
    acquisitions (acquisition-related borrowings are limited to $7,500,000 per
    acquisition). Borrowings under the line of credit bear interest at one of
    the following rates selected by the Company, the prime rate of the lender or
    the three-month or six-month London Interbank Offered Rate (LIBOR) plus one
    and one-half percent. The facility contains certain financial covenants that
    the Company believes are typical for a facility of this nature and amount,
    including a covenant not to pay or declare cash dividends. This facility
    will expire in September 1999, unless renewed. There was $10,000,000
    outstanding under the credit facility at February 28, 1999, including
    $500,000 of letters of credit.

6.  COMMITMENTS AND CONTINGENCIES

       Commitments - The Company leases office space, office equipment, and
    automobiles under operating leases and various computer and other equipment
    under capital leases. Property acquired through capital leases amounted to
    $881,000 and $884,000 at February 28, 1999 and 1998, respectively, and has
    been included in computer equipment and software (Note 2). Total accumulated
    amortization relating to these leases was $850,000 and $716,000 as of
    February 28, 1999 and 1998, respectively.

                                     F-12
<PAGE>

       Rent expense for operating leases for fiscal 1999, 1998 and 1997 was
    approximately $16,020,000, $7,754,000, and $4,723,000, respectively. The
    future minimum lease payments under these capital and operating leases for
    each of the succeeding years beginning March 1, 1999 are as follows (in
    thousands):

<TABLE>
<CAPTION>
                                                        Capital     Operating
                                                        Leases        Leases
                                                       ---------   -----------
    <S>                                                <C>         <C>
    2000                                                $    52      $ 17,517
    2001                                                      7        13,280
    2002                                                      7        10,994
    2003                                                      6         8,425
    2004                                                     --         7,473
    Thereafter                                               --        41,997
                                                        -------      --------
    Total minimum lease payments                        $    72      $ 99,686
                                                                     ========
    Less amount representing interest                        (8)
                                                        -------
    Present value of net minimum lease payments         $    64
                                                        =======
</TABLE>

       Contingencies - In the ordinary course of business, the Company may be a
    party to legal proceedings and claims. In addition, from time to time, the
    Company may have contractual disagreements with certain customers concerning
    the Company's products and services. The Company has established accruals
    related to such matters that are probable and reasonably estimable. In
    management's opinion, any liability that may ultimately result from the
    resolution of these matters in excess of amounts provided will not have a
    material adverse effect on the results of operations, financial condition or
    cash flows of the Company.

       On March 7, 1997, the Company, as part of the acquisition of certain
    assets of Information Resources, Inc. ("IRI"), entered into several
    agreements with IRI, including a Data Marketing and Guaranteed Revenue
    Agreement ("Agreement") and an Asset Purchase Agreement ("Purchase
    Agreement"). The Agreement set forth the obligations of the parties with
    regard to revenues to be paid to IRI from the sale by the Company of
    specified products provided by IRI. Under the terms of the Agreement, the
    Company guaranteed revenue to IRI in a total amount of $16.5 million over a
    period of years following execution of the Agreement by way of three
    separate revenue streams. As part of such commitment, the Company agreed to
    guarantee revenues to IRI in a total amount of $12 million through three
    separate payments over an initial three year period from execution of the
    agreement ("First Revenue Stream").

       The Company asserted that its ability to market the IRI products has been
    impaired, which, under the terms of the Agreement, obligates the parties to
    restructure the payments and/or modify the obligations with regard to the
    First Revenue Stream. IRI responded, disagreeing that an impairment existed,
    and in the alternative, that any impairment was corrected. The parties
    discussed their disagreement over the impairment issue until IRI filed a
    complaint in the Circuit Court of Cook County, Illinois on January 15, 1999.
    The complaint alleges breach of the Agreement and seeks damages in an amount
    in excess of $11.9 million for the Company's alleged failure or anticipatory
    failure to make guaranteed payments in the amount of $12 million. The
    complaint also alleges a breach of a separate Non-Competition and Non-
    Solicitation Agreement executed at the same time as the Agreement, and seeks
    damages in an amount in excess of $100,000. The Company filed a Motion to
    Stay Proceedings and Compel Arbitration, which was granted as to the claim

                                     F-13
<PAGE>

    under the Agreement and denied as to the claim under the Non-Competition and
    Non-Solicitation Agreement. Arbitration proceedings have not commenced; the
    civil action is in the early stages of discovery. It is not possible at this
    time to predict the outcome of the arbitration or litigation or the amount
    or nature of any loss.

       The Company received notice from IRI of the dismissal of the lawsuit
    filed against IRI by Think Systems Corporation on April 2, 1999. Such
    dismissal was a condition precedent to the obligation of Manugistics, Inc.
    to proceed to a Second Closing pursuant to the Purchase Agreement. IRI has
    requested that the parties proceed to such Second Closing which relates to
    the transfer of certain assets to Manugistics Services, Inc. Further, under
    the Agreement, the dismissal on the Think Systems lawsuit triggers the
    commencement of a second revenue stream to IRI, under the Agreement. The
    second revenue stream represents a total guaranteed revenue of $1.75 million
    for the first and second year following the Second Closing and $2.25 million
    for the third year following the Second Closing.

       A number of lawsuits were filed in various Federal District Courts
    alleging disclosure violations under the federal securities laws against the
    Company, its Chairman and then Chief Executive Officer, and its Chief
    Financial Officer, arising from alleged omissions and misrepresentations by
    the Company and the two individuals regarding the Company's business,
    operations, and financial condition. Each complaint seeks class action
    status on behalf of purchasers of the Company's common stock during certain
    specified periods and seeks unspecified monetary damages. The actions have
    been consolidated in the District of Maryland and an amended consolidated
    complaint has been filed by the plaintiffs. The Company will be filing a
    motion to dismiss. It is not possible at this time to predict the outcome of
    the litigation or the amount or nature of any loss. If the litigation is not
    resolved satisfactorily to the Company, the Company's financial condition
    and results of operations could be materially adversely affected.

       In order to consolidate the Company's three facilities located in the
    Rockville, Maryland area, the Company entered into an agreement effective as
    of March 26, 1998 ("Site Agreement") with a commercial real estate
    developer, Boston Properties, to lease a new office building of
    approximately 300,000 square feet to be built at a site near its current
    headquarters in Rockville, Maryland. The Company anticipated taking
    occupancy of the new facility in the spring of the year 2000. Pursuant to
    the Site Agreement, Boston Properties commenced development of the site. As
    a result of the Company's restructuring, including the significant reduction
    in force, the Company's need for expansion space has been greatly reduced.
    The Site Agreement does not address early termination due to reduced need,
    therefore, the Company has been in negotiations with Boston Properties to
    effect a mutual termination of the Site Agreement. No assurance can be given
    that the matter will be resolved satisfactorily to the Company; if not
    resolved, the financial condition, and results of operations could be
    materially adversely affected. The Company cannot predict the outcome at
    this time.

7.  STOCKHOLDERS' EQUITY

    Preferred Stock

       The Company has authorized 4,620,253 shares of $.01 par value preferred
    stock. As of February 28, 1999, no preferred shares were outstanding.

    Common Stock

       The Company has authorized 100,000,000 shares of $.002 par value common
    stock. No cash dividends on common stock have been declared or paid in any
    of the fiscal years presented. On August 18, 1997, the Company completed an
    underwritten offering of 1,600,000 newly issued shares of common stock. The
    proceeds to the Company were approximately $61,985,000, net of related
    offering expenses.

    Stock Split

       On May 9, 1997, the Board of Directors of the Company declared a two-for-
    one stock split on the Company's common stock, which was paid in the form of
    a 100% stock dividend on June 11, 1997 to shareholders of record as of May
    23, 1997. The shares outstanding, weighted average shares, amounts

                                     F-14
<PAGE>

    per share, and all other references to shares of common stock reported have
    been restated to give effect to the stock dividend.

    Net (Loss) Income per Share

       The following is a reconciliation of the number of shares used in the
    basic and diluted earnings per share computation for the periods presented
    (in thousands):

<TABLE>
<CAPTION>
                                                                     FEBRUARY 28,
                                                          1999          1998          1997
       <S>                                             <C>           <C>           <C>
       Weighted average common shares                      26,402        23,484        21,657
       Dilutive potential common shares                         -             -         1,502
                                                       ----------    ----------    ----------
       Shares used in diluted share computation            26,402        23,484        23,159
                                                       ----------    ----------    ----------

       Net (loss) income                               $  (96,112)   $  (13,165)   $    4,657
                                                       ==========    ==========    ==========
       Basic (loss) income per share                   $    (3.64)   $    (0.56)   $     0.22
                                                       ==========    ==========    ==========
       Diluted (loss) income per share                 $    (3.64)   $    (0.56)   $     0.20
                                                       ==========    ==========    ==========
</TABLE>

       The dilutive effect of options for approximately 1.3 million and 3.8
    million shares has not been considered in the computation of diluted loss
    per share in fiscal 1999 and 1998, respectively, because such shares would
    be anti-dilutive.

    Employee Stock Purchase Plan

       In October 1994, the Company adopted an employee stock purchase plan
    ("ESPP") that authorizes the Company to sell up to 1,000,000 shares of
    common stock to employees through voluntary payroll withholdings. The stock
    price to be paid by employees is equal to 85% or 95% of the lower average
    market price as reported on the National Association of Securities Dealers
    Automated Quotation system from either the first or last day of each six-
    month withholding period. Payroll deductions may not exceed the lesser of
    10% of a participant's compensation or $25,000 per year. The number of
    shares purchased under this plan by employees totaled 194,013 shares, 69,113
    shares, and 100,818 shares in fiscal 1999, 1998, and 1997, respectively. The
    weighted average fair value of shares purchased in fiscal 1999, 1998, and
    1997 was $16.62, $44.88, and $14.09, respectively.

    Stock Options

      Effective July 24, 1998, the Company adopted the 1998 Stock Option Plan
    ("1998 Plan") under which incentive and non-qualified stock options may be
    granted to officers, directors, and employees to purchase up to a total of
    up to 2,237,900 new shares of common stock at prices not less than the fair
    market value at the time of grant. No new options will be granted under the
    Company's other stock option plans, which will remain in effect with respect
    to options outstanding under such plans until such options are exercised,
    terminated, or expire. As of February 28, 1999, the Company has cumulatively
    granted options on 1,067,850 shares.

       Under the 1998 Plan, the vesting period for new options issued is in
    accordance with the Incentive and Non-Qualified Stock Option Policy approved
    by the compensation committee of the Board of Directors. Prior to 1994,
    options vested and became exercisable four years from the date of grant. In
    1994, the Company amended the plan such that options granted after the
    amendment vest and become exercisable ratably over a four-year period from
    the date of grant. The right to exercise the vested options expires upon the
    earlier of either ten years (or for options granted prior to 1994, eleven
    years) from the date of grant, or within thirty days of termination of
    employment.

       As of February 28, 1999, the Company had cumulatively granted options on
    192,500 shares under the 1994 Outside Directors Non-Qualified Stock Option
    Plan, 1,630,000 shares under the Employee

                                     F-15

<PAGE>

    Incentive Stock Option Plan, and 184,666 shares under the 1994 Executive
    Incentive Stock Option Plan.

       Effective January 29, 1999, the Company completed a stock option re-
    pricing program in which options to purchase a total of approximately 1.52
    million shares of the Company's common stock were re-priced. Under the re-
    pricing program, which was approved by the shareholders of the Company,
    outstanding options (other than those held by executive officers and
    directors) surrendered for re-pricing were exchanged for an equivalent
    number of re-priced options.

       The exercise price of the re-priced options is $8.75 per share (the fair
    market value of the common stock at that date) and the four year vesting
    schedule of each option restarted on February 1, 1999. In conjunction with
    the Company's restructuring, the Compensation Committee of the Board of
    Directors, pursuant to authority granted to it under the related options
    plans, modified the annual vesting provisions of the repriced options to
    provide that the vesting for the first two years would be accelerated if
    certain earnings milestones are met in fiscal years 2000 and 2001.

       Under proposed Financial Accounting Standards Board (FASB) rules which
    would be retroactive to option repricings effected after December 15, 1998,
    companies would be required to treat repriced options as compensatory
    options granted under a variable plan. As a result, companies would record a
    non-cash compensation expense, over the term of the option, based upon
    increases in the market price of the companies' common stock. Pending
    further announcements and the adoption of definitive rules by FASB on the
    subject, the Company cannot determine the impact on its earnings of the
    proposed rules as applied to its option repricing program.

       A summary of the status of the Company's stock option plans, including
    the TYECIN stock option plans which were assumed by the Company, and changes
    during the fiscal years is presented below with share amounts in thousands:

<TABLE>
<CAPTION>
                                                                           FEBRUARY 28,
                                                1999                          1998                          1997
                                                ----                          ----                          ----
                                        Options to                    Options to                    Options to
                                         Purchase    Wtd. Avg.         Purchase    Wtd. Avg.         Purchase    Wtd. Avg.
                                          Shares     Ex. Price          Shares     Ex. Price          Shares     Ex. Price
    <S>                                 <C>          <C>              <C>          <C>              <C>          <C>
    Outstanding at Beginning of Year         4,421    $  16.77             3,824    $   6.78             3,353    $   4.20
    Options Granted at Fair Value            3,091       15.84             1,503       36.64             1,324       11.54
    Options Granted Greater Than
      Fair Value                                15       37.73                45       26.47                24        8.01
    Exercised                                 (751)       5.94              (777)       4.34              (653)       3.00
    Cancelled                               (2,353)      28.79              (174)      16.85              (224)       5.19
                                        ----------                    ----------                    ----------
    Outstanding at End of Year               4,423    $  11.90             4,421    $  16.77             3,824    $   6.78
                                        ----------                    ----------                    ----------
    Exercisable at End of Year               1,303                         1,357                         1,119
                                        ==========                    ==========                    ==========
</TABLE>

       The weighted average fair value of options granted in fiscal 1999, 1998,
    and 1997 was $15.93, $16.48, and $11.64 per share, respectively. A summary
    of the weighted average remaining contractual life and the weighted average
    exercise price of options outstanding as of February 28, 1999 is presented
    below with share amounts in thousands:

<TABLE>
<CAPTION>
                            Number       Weighted Avg.                            Number
    Range of Exercise    Outstanding       Remaining         weighted Avg.      Exercisable      Weighted Avg.
         Prices           at 2/28/99    Contractual Life    Exercise Price       at 2/28/99     Exercise Price

                                            (share amounts in thousands)
    <S>                  <C>            <C>                 <C>                 <C>             <C>
        $ 0.52-$7.13             984                5.61         $    4.48              622          $    3.81
           7.19-7.88             408                6.67              7.59              248               7.57
           8.00-8.75           1,862                8.98              8.74               16               8.11
          8.81-42.19             877                7.86             18.13              301              12.70
</TABLE>

                                     F-16
<PAGE>

<TABLE>
    <S>                  <C>            <C>                 <C>                 <C>             <C>
         42.31-64.13             292                8.47             43.21              116              43.61
    ----------------     -----------    ----------------    --------------      -----------     --------------
        $0.52-$64.13           4,423                7.49         $   11.90            1,303          $   10.15
                         ===========                                            ===========
</TABLE>

    Stock-Based Compensation


       As permitted under SFAS No. 123, the Company continues to account for
    stock-based compensation to employees in accordance with Accounting
    Principals Board ("APB") Opinion No. 25, under which no compensation expense
    is recognized, since the exercise price of options granted is equal to or
    greater than the fair market value of the underlying security on the grant
    date. Pro forma information regarding net income and income per share is
    required by SFAS No. 123, which uses the fair value method. The fair value
    of the Company's stock-based awards to employees was estimated as of the
    date of grant using the Black-Scholes option pricing model. Limitations on
    the effectiveness of the Black-Scholes option pricing model include that
    it was developed for use in estimating the fair value of traded options
    which have no vesting restrictions and are fully transferable and that the
    model requires the use of highly subjective assumptions including expected
    stock price volatility. Because the Company's stock-based awards to
    employees have characteristics significantly different from those of traded
    options and because changes in the subjective input assumptions can
    materially affect the fair value estimate, in management's opinion, the
    existing models do not necessarily provide a reliable single measure of the
    fair value of its stock-based awards.

                                     F-17
<PAGE>

       Had compensation cost for these plans been recorded, the Company's net
    (loss) income and (loss) income per share amounts would have been as
    follows, in thousands except per share amounts:

<TABLE>
<CAPTION>
                                                             February 28,
                                                 1999           1998            1997
                                                 ----           ----            ----
    <S>                                      <C>            <C>            <C>
    Net (loss) income                        $  (101,558)   $   (19,250)   $      2,912
    Basic (loss) income per share            $     (3.85)   $     (0.82)   $       0.13
    Diluted (loss) income per share          $     (3.85)   $     (0.82)   $       0.13
</TABLE>

       The decrease in the fair value of stock options granted in 1999 resulted
    primarily from a significant decrease in the price of the Company's common
    stock during fiscal 1999 from fiscal 1998. Because the SFAS No. 123 method
    of accounting has not been applied to options granted prior to March 1,
    1995, the resulting pro forma compensation cost may not be representative of
    that to be expected in future years. Additionally, the fiscal 1999, 1998,
    and 1997 pro forma amounts include $964,000, $435,000, and $279,000,
    respectively, related to the purchase discount offered under the employee
    stock purchase plan.

       The fair value of options granted was estimated assuming no dividends and
    using the following weighted-average assumptions:

<TABLE>
<CAPTION>
                                                        OPTIONS                                         ESPP
                                   ----------------------------------------------------   --------------------------------
                                         1999            1998              1997              1999       1998      1997
                                         ----            ----              ----              ----       ----      ----
    <S>                            <C>               <C>               <C>                <C>          <C>       <C>
    Risk-free interest rates          5.15-5.52%       6.20-6.59%        5.44-5.73%          5.17%     5.65%     5.67%
    Expected term                   2.54-3.09 yrs.   2.62-7.69 yrs.    1.54-4.51 yrs.        6 mos.    6 mos.    6 mos.
    Volatility                       .6051-.6800         0.6038            0.6358            0.6259    0.6044    0.6562
</TABLE>

8.  RETIREMENT PLANS

       The Company has two defined contribution retirement savings plans (one in
    the U.S. and another in the U.K.) under the terms of which the Company
    matches a percentage of the employees' qualified contributions. New
    employees are eligible to participate in the plans upon completing one month
    of service. The Company's contribution to the plans totaled $1,669,000,
    $1,045,000, and $535,000 for fiscal 1999, 1998 and 1997, respectively.

9.  INCOME TAXES

       Income Tax Provision - The components of the (benefit) provision for
    income taxes are as follows in thousands:

<TABLE>
<CAPTION>
                                                                Year Ended February 28,
                                                          1999           1998           1997
                                                          ----           ----           ----
<S>                                                    <C>            <C>            <C>
    Current:
       Federal                                         $   (2,392)    $    7,522     $   3,518
       State                                                 (231)         2,069           375
       Foreign                                                428            710         1,063
                                                       ----------     ----------     ---------
          Total current (benefit) provision                (2,195)        10,301         4,956
                                                       ----------     ----------     ---------
    Deferred:
       Federal                                              3,976        (18,891)         (419)
       State                                                   --             18           521
       Foreign                                              1,164           (453)           19
                                                       ----------     ----------     ---------
          Total deferred provision (benefit)                5,140        (19,326)          121
                                                       ----------     ----------     ---------
    Total provision (benefit) for income taxes         $    2,945     $   (9,025)    $   5,077
                                                       ==========     ==========     =========
</TABLE>

       The income tax benefits related to the exercise of stock options were
    allocated to additional paid-in capital. Such amounts were approximately
    $1,928,000, $7,731,000, and $2,571,000, for fiscal 1999, 1998, and 1997,
    respectively.

                                     F-18
<PAGE>

       Deferred Income Taxes - The components of the Company's deferred tax
    assets and liabilities are as follows in thousands:

<TABLE>
<CAPTION>
                                                                   February 28,
                                                               1999           1998
                                                               ----           ----
<S>                                                         <C>            <C>
    Deferred tax assets:
       Uncollectible receivables and sales returns          $    2,429     $      813
       Accrued rents and other expenses                          2,549            205
       Operating loss carryforwards:
            Domestic                                            15,854            617
            Foreign                                              8,452          2,507
       Restructuring charge                                     13,344             --
       Tax credit carryforwards                                  1,937             --
       Software revenue recognition                                117             41
       Depreciation and amortization                            21,312          1,345
       Accrued commissions                                         188            723
       Purchased research and development write-off                 --         18,774
       Other temporary differences                                   8            552
                                                            ----------     ----------
            Total deferred tax assets                           66,190         25,577
            Less: valuation allowance                          (47,039)        (1,786)
                                                            ----------     ----------
              Total deferred tax assets                         19,151         23,791
    Deferred tax liabilities:
        Software developments costs                             (4,619)        (4,154)
       Deferred revenue                                           (385)          (321)
       Other temporary differences                                  --            (30)
                                                            ----------     ----------
            Total deferred tax liabilities                      (5,004)        (4,505)
                                                            ----------     ----------
            Net deferred tax assets                         $   14,147     $   19,286
                                                            ==========     ==========
</TABLE>

       Based upon the Company's historic taxable income, when adjusted for non-
    recurring items, net operating loss carryback potential, and estimates of
    future profitability, management has concluded that operating income will
    more likely than not be insufficient to cover all deferred tax assets,
    therefore, the valuation allowance has been increased in the current year to
    $47,039,000 resulting in a net deferred tax asset of $14,147,000.

       At February 28, 1999, the Company had a total of $39,955,000 of federal
    and $25,716,000 of foreign net operating loss carry-forwards ("NOLs")
    available to offset future taxable income in those respective taxing
    jurisdictions. The federal NOLs expire in the years 2011 through 2019.
    Approximately $12,081,000 of the foreign NOLs expire during the fiscal years
    2000 to 2004 while the remaining NOLs are available in perpetuity. The
    Company considers the earnings of foreign subsidiaries to be permanently
    reinvested outside the United States. Accordingly, no United States income
    tax on these earnings has been provided.

                                     F-19
<PAGE>

       Effective and Statutory Rate Reconciliation - The difference between the
    income tax provision and the amount computed by applying the federal
    statutory income tax rate to pretax accounting income is summarized as
    follows in thousands:

<TABLE>
<CAPTION>
                                                                                  February 28,
                                                                        1999         1998          1997
                                                                        ----         ----          ----
    <S>                                                               <C>          <C>           <C>
    (Benefit) provision computed at federal statutory rate            $(32,608)     $(7,767)      $3,310
    Increase (reduction) in taxes resulting from:
       State and foreign taxes, net of federal benefit                    (998)      (1,450)         411
       Change in valuation allowance                                    40,864        1,052          291
       Benefit of net operating loss carrybacks and tax credits         (4,052)      (1,255)          --
       Foreign items                                                       953          529           --
       Purchased research and development write-off                         --           --        1,257
       Tax exempt income                                                  (417)        (349)        (163)
       Other                                                              (797)         215          (29)
                                                                      --------      -------       ------
    Provision (benefit) for income taxes                              $  2,945      $(9,025)      $5,077
                                                                      ========      =======       ======
</TABLE>

10. OTHER INCOME

       Other Income - Other income consists of the following (in thousands):

<TABLE>
<CAPTION>
                                            Year ended February 28,
                                          1999        1998        1997
                                          ----        ----        ----
            <S>                         <C>         <C>         <C>
            Interest income              $3,294      $2,774      $1,232
            Interest expense               (225)       (110)        (58)
            Other                          (707)        199        (127)
                                         ------      ------      ------
            Total other income           $2,362      $2,863      $1,047
                                         ======      ======      ======
</TABLE>

11. ACQUISITIONS

    Fiscal 1999 Business Combinations

       Effective June 1, 1998, the Company acquired TYECIN by merger and
    accounted for the transaction as a pooling of interests. Accordingly, all
    financial information included in these financial statements gives
    retroactive effect to the combination for all periods presented. Under the
    terms of the merger, the Company issued approximately 333,000 shares of
    common stock. In addition, the Company assumed the outstanding TYECIN common
    stock options and converted them to options to purchase a total of
    approximately 25,000 shares of the Company's common stock. During the second
    quarter of fiscal 1999, the Company recorded a non-recurring charge of
    approximately $3.1 million for certain expenses related to this transaction,
    including, among other items, accounting, legal and severance fees.

       Previously, TYECIN's year end was December 31, 1997. Effective March 1,
    1998, TYECIN's year end was changed to February 28. During the two month
    period January and February 1998, TYECIN recorded revenues of approximately
    $609,000 and expenses of approximately $857,000. The resulting net loss of
    approximately $248,000 is directly reflected in retained (deficit) earnings
    in the Company's consolidated financial statements.

                                     F-20

<PAGE>

    Fiscal 1998 Business Combinations

       During fiscal 1998 and 1997, the Company made three acquisitions which
    have been accounted for under the purchase method. Accordingly, the purchase
    prices were allocated to certain assets and liabilities based on their
    respective fair market values. The excess of the purchase price over the
    estimated fair market value of the net assets acquired under each
    transaction was accounted for as goodwill. Amounts allocated to certain
    intangibles, including goodwill, are being amortized on a straight-line
    basis over five years. The consolidated financial statements include the
    operating results of each acquisition from the date of the acquisition.

       In February 1998, the Company acquired ProMIRA Software, Inc.
    ("ProMIRA"), a provider of supply chain planning software for manufacturers
    of complex products in industries such as high technology, electronics and
    motor vehicles and parts. The total purchase price was approximately
    $64,500,000, comprised of cash, 1,550,000 shares of common stock and options
    to purchase 78,379 shares of common stock valued at $57.8 million, and
    acquisition costs. The purchase price was allocated based on a fair value
    appraisal obtained from a nationally recognized independent appraisal firm,
    and included allocations to certain intangible assets, such as existing
    software products which had reached technological feasibility, and in-
    process software development efforts which had not reached technological
    feasibility ("purchased research and development"). The write-off of
    purchased research and development resulted in a non-recurring charge to the
    Company's operating results, and reduced net income for fiscal 1998 by
    $28,653,000 ($47,340,000, inclusive of income tax benefits of $18,687,000),
    or $1.22 basic and $1.09 diluted income per share.

       In June 1997, the Company acquired Synchronology Group Limited, a
    closely-held company which provides manufacturing planning and scheduling
    consulting services. In March 1997, the Company entered into a definitive
    agreement to acquire certain assets of Information Resources, Inc. ("IRI").
    (See Note 6 for certain information regarding litigation commenced by IRI
    against the Company.) The total purchase prices of these acquisitions were
    approximately $3,200,000 and $1,900,000, respectively, and consisted
    primarily of cash, assumed liabilities, and acquisition costs.

       Had the acquisitions made in fiscal 1998 been completed as of March 1,
    1996, unaudited pro forma results would have been as follows:

<TABLE>
<CAPTION>
                                                    Year ended February 28,
                                                      1998           1997
                                                      ----           ----
                                                        (in thousands)
          <S>                                     <C>            <C>
          Revenues                                $   188,893    $   103,872
          Net Loss                                    (18,328)       (29,025)
          Basic and diluted loss per share              (0.78)         (1.34)
</TABLE>

       Such unaudited pro forma amounts are not necessarily indicative of what
    the actual consolidated results of operations might have been had the
    acquisitions been effective at the beginning of each period presented.

    Fiscal 1997 Business Combinations

       In fiscal 1997, the Company acquired Avyx, Inc. ("Avyx"), a custom
    developer and services provider of manufacturing scheduling software. The
    total purchase price was approximately $3,799,000, primarily comprised of
    cash, assumed liabilities and acquisition costs. The purchase price
    allocation included allocations to certain intangible assets, such as
    existing software products and in-process software development efforts which
    had not reached technological feasibility. The Company's write-off of the
    purchased research and development resulted in a non-recurring charge to the
    Company's operating results, and reduced net income for fiscal 1997 by
    $3,697,000, or $0.17 basic and $0.16 diluted income per share. The results
    of operations of Avyx prior to the acquisition were not material to the
    consolidated financial statements.

                                     F-21
<PAGE>

        In addition, the Company entered into a three-year non-compete agreement
     with two of the principals of Avyx, who did not become employees of the
     Company, in exchange for an option to purchase 60,000 shares of the
     Company's common stock. The agreement was valued at $217,000, which
     represented the estimated fair value of the stock options issued, and is
     being amortized over the life of the agreement, which is five years.

12.  RESTRUCTURING OF OPERATIONS

        In the third and fourth quarters of 1999, the Company announced and
     began to implement a restructuring plan aimed at reducing costs and
     returning the Company to profitability. The restructuring plan was
     necessitated due to the Company's poor financial performance throughout
     fiscal 1999, which resulted from various factors including but not limited
     to poor sales execution, new competitive factors, lengthening of sales
     cycles, and the concerns of clients and prospects regarding the Year 2000
     issue and global economic conditions. The Company reorganized to focus on
     its core business of providing supply chain solutions to companies with
     dynamic supply chains, specifically those in the customer-driven
     industries. The Company is also expanding its product innovation to support
     transforming the supply chain to an e-chain, interface and integration
     technologies, and broadening its distribution channels. As a result of the
     restructuring, the Company recorded charges of $700,000 and $33.1 million
     in the third and fourth quarters, respectively, in fiscal 1999. The
     components of the charge included (in thousands):

            Severance and related benefits                        $  4,094
            Lease obligations and terminations                      20,200
            Write-down of property, equipment and leasehold
            improvements                                             6,418
            Write-down capitalized software development costs        1,343
            Goodwill                                                 1,354
            Other                                                      366
                                                                  --------
            Total restructuring charge                            $ 33,775
                                                                  ========

        Due to the redirection of the core business strategy, the Company
     eliminated 408 positions, across all divisions, primarily located
     throughout the Company's U.S. operations of which 330 were terminated
     prior to year-end. The Company has recorded a charge of $4.1 million and
     has paid approximately $2.9 million in severance related costs as of
     February 28, 1999, with the remaining to be paid out during fiscal 2000. As
     management continues to implement its restructuring plan, additional
     positions may be identified for termination.

        The provision for lease obligations and terminations relate primarily to
     future lease commitments on office facilities that will be closed during
     fiscal 2000 as part of the restructuring. The charge represents future
     lease obligations, net of projected sublease income, on such leases past
     the dates the offices will be closed by the Company. Some of these
     subleases are in negotiation but have not been finalized, and therefore the
     charge includes management's estimates of the likely outcome of these
     negotiations. Cash payments on the leases and lease terminations will occur
     over the remaining lease terms, the majority of which expire prior to 2009.

        The write-down of operating assets relates to a charge to reduce the
     carrying amount of certain equipment, furniture and fixtures and leasehold
     improvements, to their estimated net realizable value. These write-downs
     represent a loss from abandonment of $6.4 million. The write-down of
     capitalized software development costs relates to a charge of $1.3 million
     for costs associated with abandoned

                                     F-22
<PAGE>

     software products. The Company has also recorded a charge of $1.4 million
     to write-down goodwill related to its determination to abandon the IRI
     business. The decrease in net future cash flows results primarily from
     abandoning software products acquired. The net realizable value of these
     assets was determined based on management estimates, which considered such
     factors as the nature and age of the assets to be disposed of, the timing
     of the assets' abandonment, and the method and potential costs of the
     disposal. Such estimates will be monitored each quarter and adjusted if
     necessary. The effect of holding these assets in the intervening period is
     immaterial.

        Since the restructuring was announced and in-process near the end of the
     fiscal year, at February 28, 1999, no subleasing agreements were executed.
     Subleasing arrangements are expected to be finalized during fiscal year
     2000 for the restructured locations. As space is subleased, the abandoned
     assets (consisting primarily of leasehold improvements and office
     furniture) are primarily being used by the sub-lessors. The abandoned
     assets are not held for sale. The future lease payments plus the value of
     the leasehold improvements are greater than the expected future sub-lessor
     payments. Since full recovery is not anticipated, the related assets are
     written down to their estimated net realizable value.

        The following table depicts the restructuring activity through February
     28, 1999 (in thousands):

<TABLE>
<CAPTION>
                                             Initial     Adjustment    Utilization of Accrual    Remaining
                                                                       ----------------------
                                              Charge     To Charge        Cash      Non-Cash      Accrual
                                              ------     ---------        ----      --------      -------
     <S>                                     <C>         <C>           <C>
     Severance costs                         $ 4,094   $       --      $(2,942)     $    --      $ 1,152
     Lease obligation costs                   20,200           --       (1,286)          --       18,914
     Impairment of long-lived assets           9,115           --           --       (7,406)       1,709
     Other                                       366           --         (214)          --          152
                                             -------   ----------      -------      -------      -------
     Total                                   $33,775   $       --      $(4,442)     $(7,406)     $21,927
                                             =======   ==========      =======      =======      =======
</TABLE>

13.  SEGMENT INFORMATION

        The Company and its subsidiaries are principally engaged in the design,
     development, marketing, licensing, and support and implementation of an
     integrated suite of supply chain planning software products. Substantially
     all revenues result from the licensing of the Company's software products
     and related consulting and customer support services. The Company's chief
     operating decision makers review financial information, presented on a
     consolidated basis, accompanied by disaggregated information about revenues
     by geographic region for purposes of making operating decisions and
     assessing financial performance. Accordingly, the Company considers itself
     to be in a single industry segment, specifically the license, consulting,
     and support of its software applications.

<TABLE>
<CAPTION>
     Geographic Areas                           1999             1998           1997
                                                ----             ----           ----
                                                            (in thousands)
     <S>                                     <C>             <C>             <C>
     Revenues:
       Americas                               $138,734       $152,572       $ 87,969
       Europe                                   45,356         35,708         18,273
       Asia/Pacific                              7,509          5,890             --
       Eliminations                            (14,035)       (13,907)        (6,035)
                                              --------       --------       --------
                                              $177,564       $180,263       $100,207
                                              ========       ========       ========
     (Loss) income from operations:
       Americas                               $(75,795)      $(23,148)      $  8,067
       Europe                                      499          9,595          6,655
       Asia/Pacific                             (6,198)         2,407             --
       Eliminations                            (14,035)       (13,907)        (6,035)
                                              --------       --------       --------
                                              $(95,529)      $(25,053)      $  8,687
                                              ========       ========       ========
     Identifiable assets:
       Americas                               $221,358       $289,701       $ 88,212
       Europe                                   34,587         22,932         12,161
       Asia/Pacific                             (1,375)         3,195             --
       Eliminations                            (83,234)       (90,613)       (14,067)
                                              --------       --------       --------
                                              $171,336       $225,215       $ 86,306
                                              ========       ========       ========
</TABLE>

        No single customer accounted for 10% or more of the Company's net sales
     in fiscal 1999, 1998 or 1997.

                                     F-23

<PAGE>

14.  SUPPLEMENTAL CASH FLOW INFORMATION

        Cash paid for interest amounted to approximately $227,000, $110,000, and
     $55,000 in fiscal 1999, 1998 and 1997, respectively. Cash paid for income
     taxes amounted to approximately $1,400,000, $3,478,000, and $1,489,000 in
     fiscal 1999, 1998 and 1997, respectively.

        Supplemental information of non-cash investing and financing activities
     is as follows:

        During fiscal 1999, 1998 and 1997, the Company received income tax
     benefits of $1,928,000, $7,731,000, and $2,571,000, respectively, relating
     to the exercise of stock options. The benefits were recorded as an increase
     to additional paid-in capital. During fiscal 1997, the fair value of
     treasury stock issued was $238,000. Also during fiscal 1997, options valued
     at $217,000 were granted under a non-compete agreement and $345,000
     relating to a leased asset and obligation was capitalized. (See discussion
     of acquisition at Note 11.)

15.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

        Summarized quarterly consolidated financial information for fiscal 1999
     and 1998 follows:

<TABLE>
<CAPTION>
                                                     1st Quarter      2nd Quarter      3rd Quarter      4th Quarter
                                                     -----------      -----------      -----------      -----------
     <S>                                             <C>              <C>              <C>              <C>
     1999                                                        (in thousands, except per share data)
     Total revenues                                  $    41,123      $    52,940      $    43,044      $    40,457
     Restructuring costs                                      --               --              701           33,074
     Acquisition-related expenses                             --            3,095               --               --
     Operating loss                                      (14,425)         (10,340)         (15,885)         (54,879)
     Net loss                                             (8,539)          (5,966)         (10,407)         (71,200)
     Basic loss per share                            $     (0.33)     $     (0.23)     $     (0.39)     $     (2.66)
     Shares used in basic share computation               26,253           26,415           26,520           26,755
     Dilutive Loss per share                         $     (0.33)     $     (0.23)     $     (0.39)     $     (2.66)
     Shares used in diluted share computation             26,253           26,415           26,520           26,755

     1998
     Total revenues                                       35,616           39,160           42,159           63,328
     Purchased research and development costs                 --               --               --           47,340
     Operating income (loss)                               3,114            4,076            5,114          (37,357)
     Net income (loss)                                     2,126            2,788            3,795          (21,874)
     Basic income (loss) per share                          0.10             0.12             0.16            (0.89)
     Shares used in basic share computation               22,086           22,990           24,228           24,633
     Dilutive income (loss) per share                       0.09             0.11             0.14            (0.89)
     Shares used in duluted share computation             23,630           25,043           26,941           24,633
</TABLE>

        Included in the second quarter of fiscal 1999 are non-recurring charges
     related to the TYECIN acquisition (Note 4). Included in the third and
     fourth quarters of fiscal 1999 are charges related to the corporate-wide
     restructuring (Note 10). Included in the fourth quarter of fiscal 1998 are
     non-recurring charges of $47,340,000 for write-offs of purchased research
     and development costs in connection with acquisitions (see Note 4).

                                     F-24
<PAGE>

16. SUBSEQUENT EVENTS

    Subsequent to February 28, 1999, the Company issued common stock options in
connection with hiring of its new Chief Executive Officer. Under his employment
agreements, the Company granted 2,000,000 options to purchase common stock of
the Company at an exercise price of $7.81. An additional 1,000,000 options to
purchase common stock of the Company will be granted based upon the achievement
of certain performance milestones.


                                   * * * * *

                                     F-25

<PAGE>
                                                                             S-1


                   INDEPENDENT AUDITORS' REPORT ON SCHEDULE

To the Stockholders and Board of Directors of
  Manugistics Group, Inc.:

        We have audited the consolidated financial statements of Manugistics
Group, Inc. (the Company) and its subsidiaries as of February 28, 1999 and 1998,
and for each of the three years in the period ended February 28, 1999, and have
issued our report thereon dated April 7, 1999 (except Note 16 as to which the
date is April 25, 1999); such report is included elsewhere in this Form 10-K.
Our audit also included the consolidated financial statement schedule of
Manugistics Group, Inc., listed in Item 14. This consolidated financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth herein.



/s/ Deloitte & Touche, LLP

Washington, D.C.
April 7, 1999 (except Note 16 as to which the date is April 25, 1999)

<PAGE>

                                                                             S-2
<TABLE>
<CAPTION>

                                             MANUGISTICS GROUP, INC. AND SUBSIDIARIES
                                          SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                                                 Balance at            Charged to                                    Balance at
                                                 Beginning              Costs and                                       End
                                                 of Period              Expenses              Write-offs             of Period
                                                 ----------            ----------             ----------            -----------
                                                                                 (in thousands)
<S>                                              <C>                   <C>                    <C>                   <C>
Allowance for doubtful accounts
     and sales returns
Year ended February 28, 1999                        2,099                 6,940                 (2,740)                 6,299
Year ended February 28, 1998                        1,235                 1,517                   (653)                 2,099
Year ended February 29, 1997                          711                 2,549                 (2,025)                 1,235
</TABLE>