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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



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FORM 10-Q



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|    |  |                                                                                        
|--- |  | ---------------------------------------------------------------------------------------
|/X/ |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2001

OR

|     |  |                                                                                         
|---- |  | ----------------------------------------------------------------------------------------
|/  / |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM  TO

Commission file number 333-63394

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

|                                                                        |  |                                                   
|----------------------------------------------------------------------- |  | --------------------------------------------------
|DELAWARE
(State or other jurisdiction of
incorporation or organization) |  | 41-1251159
(I.R.S. Employer
Identification Number)

380 ST. PETER STREET
ST. PAUL, MINNESOTA 55102
(Address of principal executive offices)

(651) 767-7000
(Registrants telephone number, including area code)



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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 /  / No /X/

The number of shares of the registrants common stock outstanding as of
December 31, 2001 was 93,250,037.



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TABLE OF CONTENTS



|                              |                                                                                               |                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                              |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS               
|                              |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK                           
|PART II. OTHER INFORMATION   
|                              | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                              | ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS                                            
|                              | ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                      
|                              | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                              | ITEM 5. OTHER INFORMATION                                                                    
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                   
|EXHIBIT INDEX                



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##### Table of Contents



LAWSON SOFTWARE, INC.

Form 10-Q

Index

|           |  |                                                                |  |  |       |      |    | 
|---------- |  | -------------------------------------------------------------- |  |  | ----- | ---- | -- | 
|           |  |                                                                |  |  |       | PAGE |   
|           |  |                                                                |  |  |       |      |   
|PART I.    |  | FINANCIAL INFORMATION                                          |  |  |       |     
|Item 1.    |  | Financial Statements                                           |  |  |       |     
|           |  | Condensed Consolidated Balance Sheets at November 30, 2001 and |  |  |       |     
|           |  | May 31, 2001                                                   |  |  | 3     |     
|           |  | Condensed Consolidated Statements of Operations                |  |  |       |     
|           |  | for the three and six months ended November 30, 2001 and 2000  |  |  | 4     |     
|           |  | Condensed Consolidated Statements of Cash Flows                |  |  |       |     
|           |  | for the six months ended November 30, 2001 and 2000            |  |  | 5     |     
|           |  | Notes to Condensed Consolidated Financial Statements           |  |  | 6-9   |     
|Item 2.    |  | Management's Discussion and Analysis of Financial Condition    |  |  |       |     
|           |  | and Results of Operations                                      |  |  | 10-20 |     
|Item 3.    |  | Qualitative and Quantitative Disclosure about Market Risk      |  |  | 20    |     
|PART II.   |  | OTHER INFORMATION                                              |  |  |       |     
|Item 1.    |  | Legal Proceedings                                              |  |  | 20    |     
|Item 2.    |  | Changes in Securities and Use of Proceeds                      |  |  | 20-21 |     
|Item 3.    |  | Defaults Upon Senior Securities                                |  |  | 21    |     
|Item 4.    |  | Submission of Matters to a Vote of Security Holders            |  |  | 21    |     
|Item 5.    |  | Other Information                                              |  |  | 21    |     
|Item 6.    |  | Exhibits and Reports on Form 8-K                               |  |  | 21    |     
|SIGNATURES |  |                                                                |  |  |       |      | 22 | 

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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

LAWSON SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)

|                                                                         |                                                    |                                        |                                                                                |         |              |         |        |         |         |         |  
|------------------------------------------------------------------------ | -------------------------------------------------- | -------------------------------------- | ------------------------------------------------------------------------------ | ------- | ------------ | ------- | ------ | ------- | ------- | ------- | -
|                                                                         |                                                    |                                        |                                                                                |         | November 30, |         |        | May 31, |        
|                                                                         |                                                    |                                        |                                                                                |         | 2001         |         |        | 2001    |        
|                                                                         |                                                    |                                        |                                                                                |         |              |         |        |         |        
|                                                                         |                                                    |                                        |                                                                                |         | (unaudited)  |         |        |         |         |        
|ASSETS                                                                   |                                                    |                                        |                                                                                |         |              |         |        |        
|Current assets:                                                          |                                                    |                                        |                                                                                |         |              |         |        |        
|                                                                         |                                                    | Cash and cash equivalents              |                                                                                | $       | 24,111       |         |        | $       | 58,839  |        
|                                                                         |                                                    | Marketable securities                  |                                                                                |         | 3,992        |         |        |         | 18,769  |        
|                                                                         |                                                    | Trade accounts receivable, net         |                                                                                |         | 101,588      |         |        |         | 92,335  |        
|                                                                         |                                                    | Deferred income taxes                  |                                                                                |         | 19,786       |         |        |         | 19,786  |        
|                                                                         |                                                    | Prepaid expenses and other assets      |                                                                                |         | 13,996       |         |        |         | 9,070   |        
|                                                                         |                                                    |                                        |                                                                                |         |              |         |        |        
|                                                                         |                                                    |                                        | Total current assets                                                           |         |              | 163,473 |        |         |         | 198,799 |  
|Property and equipment, net                                              |                                                    |                                        | 29,721                                                                         |         |              |         | 24,972 |        
|Goodwill, net                                                            |                                                    |                                        | 22,214                                                                         |         |              |         | 4,259  |        
|Other intangible assets, net                                             |                                                    |                                        | 12,630                                                                         |         |              |         |       |        
|Deferred income taxes                                                    |                                                    |                                        | 2,057                                                                          |         |              |         | 6,637  |        
|Other assets, noncurrent                                                 |                                                    |                                        | 476                                                                            |         |              |         | 1,436  |        
|                                                                         |                                                    |                                        |                                                                                |         |              |         |        |        
|                                                                         |                                                    |                                        | Total assets                                                                   |         | $            | 230,571 |        |         | $       | 236,103 |  
|                                                                         |                                                    |                                        |                                                                                |         |              |         |        |        
|LIABILITIES, MANDATORILY REDEEMABLE SECURITIES AND STOCKHOLDERS DEFICIT |                                                    |                                        |                                                                                |         |              |         |        |        
|Current liabilities:                                                     |                                                    |                                        |                                                                                |         |              |         |        |        
|                                                                         |                                                    | Current portion of long-term debt      |                                                                                | $       | 761          |         |        | $       | 792     |        
|                                                                         |                                                    | Accounts payable                       |                                                                                |         | 13,297       |         |        |         | 14,440  |        
|                                                                         |                                                    | Accrued compensation and benefits      |                                                                                |         | 21,536       |         |        |         | 21,174  |        
|                                                                         |                                                    | Other accrued liabilities              |                                                                                |         | 14,432       |         |        |         | 16,127  |        
|                                                                         |                                                    | Income taxes payable                   |                                                                                |         |             |         |        |         | 5,212   |        
|                                                                         |                                                    | Deferred revenue and customer deposits |                                                                                |         | 95,476       |         |        |         | 101,632 |        
|                                                                         |                                                    |                                        |                                                                                |         |              |         |        |        
|                                                                         |                                                    |                                        | Total current liabilities                                                      |         |              | 145,502 |        |         |         | 159,377 |  
|Long-term debt, less current portion                                     |                                                    |                                        | 649                                                                            |         |              |         | 1,010  |        
|Senior subordinated convertible notes                                    |                                                    |                                        | 8,219                                                                          |         |              |         | 8,031  |        
|Mandatorily redeemable common stock warrants                             |                                                    |                                        | 3,495                                                                          |         |              |         | 2,560  |        
|Other long-term liabilities                                              |                                                    |                                        | 3,887                                                                          |         |              |         | 4,099  |        
|                                                                         |                                                    |                                        |                                                                                |         |              |         |        |        
|                                                                         |                                                    |                                        | Total liabilities                                                              |         |              | 161,752 |        |         |         | 175,077 |  
|                                                                         |                                                    |                                        |                                                                                |         |              |         |        |        
|Commitments and contingencies (see Note 5)                              
|Series A convertible redeemable preferred stock                          |                                                    |                                        | 29,844                                                                         |         |              |         | 29,750 |        
|Mandatorily redeemable common stock at redemption value                  |                                                    |                                        | 56,342                                                                         |         |              |         | 56,145 |        
|                                                                         |                                                    |                                        |                                                                                |         |              |         |        |        
|Stockholders deficit:                                                   |                                                    |                                        |                                                                                |         |              |         |        |        
|                                                                         | Preferred stock                                    |                                        |                                                                                |        |              |         |        |        |        
|                                                                         | Common stock                                       |                                        |                                                                                | 672     |              |         |        | 664     |        
|                                                                         | Additional paid-in capital                         |                                        |                                                                                | 30,789  |              |         |        | 26,783  |        
|                                                                         | Treasury stock, at cost                            |                                        |                                                                                | (15,344 | )            |         |        | (15,344 | )      
|                                                                         | Deferred stock-based compensation                  |                                        |                                                                                | (12,133 | )            |         |        | (15,093 | )      
|                                                                         | Retained earnings                                  |                                        |                                                                                | 36,214  |              |         |        | 35,025  |        
|                                                                         | Accumulated other comprehensive loss               |                                        |                                                                                | (1,223  | )            |         |        | (759    | )      
|                                                                         | Adjustment for mandatorily redeemable common stock |                                        |                                                                                | (56,342 | )            |         |        | (56,145 | )      
|                                                                         |                                                    |                                        |                                                                                |         |              |         |        |        
|                                                                         |                                                    |                                        | Total stockholders deficit                                                    |         |              | (17,367 | )      |         |         | (24,869 | )
|                                                                         |                                                    |                                        |                                                                                |         |              |         |        |        
|                                                                         |                                                    |                                        | Total liabilities, mandatorily redeemable securities and stockholders deficit |         | $            | 230,571 |        |         | $       | 236,103 |  
|                                                                         |                                                    |                                        |                                                                                |         |              |         |        |        

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

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LAWSON SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

|                                               |                                      |                              |     |                    |        |   |                  |        |        |          |       |         |          |   |        |         |         | 
|---------------------------------------------- | ------------------------------------ | ---------------------------- | --- | ------------------ | ------ | - | ---------------- | ------ | ------ | -------- | ----- | ------- | -------- | - | ------ | ------- | ------- | 
|                                               |                                      |                              |     | Three Months Ended |        |   | Six Months Ended |       
|                                               |                                      |                              |     |                    |        |   |                  |       
|                                               |                                      |                              |     | Nov. 30,           |        |   | Nov. 30,         |        |        | Nov. 30, |       |         | Nov. 30, |  
|                                               |                                      |                              |     | 2001               |        |   | 2000             |        |        | 2001     |       |         | 2000     |  
|                                               |                                      |                              |     |                    |        |   |                  |        |        |          |       |         |          |  
|Revenues:                                      |                                      |                              |     |                    |        |   |                  |        |        |          |       |         |          |   |        |        
|                                               | License fees                         |                              | $   | 30,081             |        |   | $                | 25,791 |        |          | $     | 65,203  |          |   | $      | 56,091  |        
|                                               | Services                             |                              |     | 65,043             |        |   |                  | 56,539 |        |          |       | 130,833 |          |   |        | 110,420 |        
|                                               |                                      |                              |     |                    |        |   |                  |        |        |          |       |         |         
|                                               |                                      | Total revenues               |     |                    | 95,124 |   |                  |        | 82,330 |          |       |         | 196,036  |   |        |         | 166,511 | 
|Cost of revenues:                              |                                      |                              |     |                    |        |   |                  |        |        |          |       |         |          |   |        |        
|                                               | Cost of license fees                 |                              |     | 5,022              |        |   |                  | 4,471  |        |          |       | 15,736  |          |   |        | 8,689   |        
|                                               | Cost of services                     |                              |     | 34,350             |        |   |                  | 28,796 |        |          |       | 68,398  |          |   |        | 55,838  |        
|                                               |                                      |                              |     |                    |        |   |                  |        |        |          |       |         |         
|                                               |                                      | Total cost of revenues       |     |                    | 39,372 |   |                  |        | 33,267 |          |       |         | 84,134   |   |        |         | 64,527  | 
|                                               |                                      | Gross profit                 |     |                    | 55,752 |   |                  |        | 49,063 |          |       |         | 111,902  |   |        |         | 101,984 | 
|Operating expenses:                            |                                      |                              |     |                    |        |   |                  |        |        |          |       |         |          |   |        |        
|                                               | Research and development             |                              |     | 16,307             |        |   |                  | 12,487 |        |          |       | 33,139  |          |   |        | 24,336  |        
|                                               | Sales and marketing                  |                              |     | 30,358             |        |   |                  | 26,684 |        |          |       | 60,399  |          |   |        | 52,336  |        
|                                               | General and administrative           |                              |     | 8,019              |        |   |                  | 7,390  |        |          |       | 14,198  |          |   |        | 14,046  |        
|                                               | Other general expenses (see Note 2)  |                              |     | 169                |        |   |                  |       |        |          |       | 655     |          |   |        |        |        
|                                               | Amortization of acquired intangibles |                              |     | 208                |        |   |                  |       |        |          |       | 346     |          |   |        |        |        
|                                               |                                      |                              |     |                    |        |   |                  |        |        |          |       |         |         
|                                               |                                      | Total operating expenses     |     |                    | 55,061 |   |                  |        | 46,561 |          |       |         | 108,737  |   |        |         | 90,718  | 
|                                               |                                      |                              |     |                    |        |   |                  |        |        |          |       |         |         
|Operating income                               |                                      |                              | 691 |                    |        |   | 2,502            |        |        |          | 3,165 |         |          |   | 11,266 |        
|Other income (expense):                        |                                      |                              |     |                    |        |   |                  |        |        |          |       |         |          |   |        |        
|                                               | Interest income                      |                              |     | 249                |        |   |                  | 433    |        |          |       | 831     |          |   |        | 1,134   |        
|                                               | Interest expense                     |                              |     | (710               | )      |   |                  | (15    | )      |          |       | (1,854  | )        |   |        | (454    | )      
|                                               |                                      |                              |     |                    |        |   |                  |        |        |          |       |         |         
|                                               |                                      | Total other (expense) income |     |                    | (461   | ) |                  |        | 418    |          |       |         | (1,023   | ) |        |         | 680     | 
|Income before income taxes                     |                                      |                              | 230 |                    |        |   | 2,920            |        |        |          | 2,142 |         |          |   | 11,946 |        
|Provision for income taxes                     |                                      |                              | 92  |                    |        |   | 1,227            |        |        |          | 857   |         |          |   | 5,018  |        
|                                               |                                      |                              |     |                    |        |   |                  |        |        |          |       |         |         
|Net income                                     |                                      |                              | 138 |                    |        |   | 1,693            |        |        |          | 1,285 |         |          |   | 6,928  |        
|                                               |                                      |                              |     |                    |        |   |                  |        |        |          |       |         |         
|Accretion on preferred stock                   |                                      |                              | (48 | )                  |        |   |                 |        |        |          | (96   | )       |          |   |       |        
|                                               |                                      |                              |     |                    |        |   |                  |        |        |          |       |         |         
|Net income applicable to common stockholders   |                                      | $                            | 90  |                    |        | $ | 1,693            |        |        | $        | 1,189 |         |          | $ | 6,928  |        
|                                               |                                      |                              |     |                    |        |   |                  |        |        |          |       |         |         
|Net income per share:                          |                                      |                              |     |                    |        |   |                  |        |        |          |       |         |          |   |        |        
|                                               | Basic                                |                              | $   | 0.00               |        |   | $                | 0.02   |        |          | $     | 0.02    |          |   | $      | 0.10    |        
|                                               |                                      |                              |     |                    |        |   |                  |        |        |          |       |         |         
|                                               | Diluted                              |                              | $   | 0.00               |        |   | $                | 0.02   |        |          | $     | 0.01    |          |   | $      | 0.08    |        
|                                               |                                      |                              |     |                    |        |   |                  |        |        |          |       |         |         
|Shares used in computing net income per share: |                                      |                              |     |                    |        |   |                  |        |        |          |       |         |          |   |        |        
|                                               | Basic                                |                              |     | 67,040             |        |   |                  | 71,214 |        |          |       | 66,882  |          |   |        | 71,005  |        
|                                               |                                      |                              |     |                    |        |   |                  |        |        |          |       |         |         
|                                               | Diluted                              |                              |     | 91,662             |        |   |                  | 83,728 |        |          |       | 91,670  |          |   |        | 82,273  |        
|                                               |                                      |                              |     |                    |        |   |                  |        |        |          |       |         |         

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

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LAWSON SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

|                                                 |                                                                               |                                                                              |                                        |         |                  |         |         |          |        |         |  
|------------------------------------------------ | ----------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | -------------------------------------- | ------- | ---------------- | ------- | ------- | -------- | ------ | ------- | -
|                                                 |                                                                               |                                                                              |                                        |         | Six Months Ended |        
|                                                 |                                                                               |                                                                              |                                        |         |                  |        
|                                                 |                                                                               |                                                                              |                                        |         | Nov. 30,         |         |         | Nov. 30, |       
|                                                 |                                                                               |                                                                              |                                        |         | 2001             |         |         | 2000     |       
|                                                 |                                                                               |                                                                              |                                        |         |                  |         |         |          |       
|Cash flows from operating activities:            |                                                                               |                                                                              |                                        |         |                  |         |         |         
|                                                 | Net income                                                                    |                                                                              | $                                      | 1,285   |                  |         | $       | 6,928    |       
|                                                 | Adjustments to reconcile net income to net cash used in operating activities: |                                                                              |                                        |         |                  |         |         |          |       
|                                                 |                                                                               | Depreciation and amortization                                                |                                        |         | 5,441            |         |         |          | 5,244  |        
|                                                 |                                                                               | Provision for doubtful accounts                                              |                                        |         | 2,150            |         |         |          | 2,063  |        
|                                                 |                                                                               | Equity instruments issued to non-employees                                   |                                        |         |                 |         |         |          | 347    |        
|                                                 |                                                                               | Tax benefit from stockholder transactions                                    |                                        |         | 1,818            |         |         |          | 1,645  |        
|                                                 |                                                                               | Tax commitment from exercise of stock options                                |                                        |         | (941             | )       |         |          | (1,593 | )      
|                                                 |                                                                               | Interest expense on put warrants                                             |                                        |         | 935              |         |         |          |       |        
|                                                 |                                                                               | Amortization of stock-based compensation                                     |                                        |         | 5,010            |         |         |          | 544    |        
|                                                 |                                                                               | Amortization of discounts on notes payable                                   |                                        |         | 188              |         |         |          |       |        
|                                                 |                                                                               | Amortization of discount on marketable securities                            |                                        |         | (267             | )       |         |          |       |        
|                                                 |                                                                               | Changes in operating assets and liabilities, net of effect from acquisition: |                                        |         |                  |         |         |          |        |        
|                                                 |                                                                               |                                                                              | Trade accounts receivable              |         |                  | (10,254 | )       |          |        | (11,338 | )
|                                                 |                                                                               |                                                                              | Prepaid expenses and other assets      |         |                  | (3,362  | )       |          |        | (8,799  | )
|                                                 |                                                                               |                                                                              | Accounts payable                       |         |                  | (1,398  | )       |          |        | (7,050  | )
|                                                 |                                                                               |                                                                              | Accrued and other liabilities          |         |                  | (2,983  | )       |          |        | (938    | )
|                                                 |                                                                               |                                                                              | Income taxes payable                   |         |                  | (5,212  | )       |          |        | (553    | )
|                                                 |                                                                               |                                                                              | Deferred revenue and customer deposits |         |                  | (7,563  | )       |          |        | 12,851  |  
|                                                 |                                                                               |                                                                              |                                        |         |                  |         |        
|                                                 | Net cash used in operating activities                                         |                                                                              |                                        | (15,153 | )                |         |         | (649     | )     
|                                                 |                                                                               |                                                                              |                                        |         |                  |         |        
|Cash flows from investing activities:            |                                                                               |                                                                              |                                        |         |                  |         |         |         
|                                                 | Cash paid in conjunction with acquisition, net of cash acquired               |                                                                              |                                        | (25,995 | )                |         |         |         |       
|                                                 | Purchases of marketable securities                                            |                                                                              |                                        | (3,947  | )                |         |         |         |       
|                                                 | Sales and maturities of marketable securities                                 |                                                                              |                                        | 18,991  |                  |         |         |         |       
|                                                 | Purchases of property and equipment                                           |                                                                              |                                        | (9,270  | )                |         |         | (1,953   | )     
|                                                 |                                                                               |                                                                              |                                        |         |                  |         |        
|                                                 | Net cash used in investing activities                                         |                                                                              |                                        | (20,221 | )                |         |         | (1,953   | )     
|                                                 |                                                                               |                                                                              |                                        |         |                  |         |        
|Cash flows from financing activities:            |                                                                               |                                                                              |                                        |         |                  |         |         |         
|                                                 | Payments on long-term debt                                                    |                                                                              |                                        | (439    | )                |         |         | (18,999  | )     
|                                                 | Exercise of stock options                                                     |                                                                              |                                        | 1,085   |                  |         |         | 75       |       
|                                                 |                                                                               |                                                                              |                                        |         |                  |         |        
|                                                 | Net cash provided by (used in) financing activities                           |                                                                              |                                        | 646     |                  |         |         | (18,924  | )     
|                                                 |                                                                               |                                                                              |                                        |         |                  |         |        
|Decrease in cash and cash equivalents            |                                                                               |                                                                              | (34,728                                | )       |                  |         | (21,526 | )       
|Cash and cash equivalents at beginning of period |                                                                               |                                                                              | 58,839                                 |         |                  |         | 45,862  |         
|                                                 |                                                                               |                                                                              |                                        |         |                  |         |        
|Cash and cash equivalents at end of period       |                                                                               | $                                                                            | 24,111                                 |         |                  | $       | 24,336  |         
|                                                 |                                                                               |                                                                              |                                        |         |                  |         |        

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

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LAWSON SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

1. BASIS OF PRESENTATION

The unaudited condensed consolidated financial statements included herein
reflect all adjustments, in the opinion of management, necessary to fairly
state Lawson Software, Inc.s (the Companys) consolidated financial position,
results of operations and cash flows for the periods presented. These
adjustments consist of normal, recurring items. The preparation of financial
statements in conformity with generally accepted accounting principles in the
United States of America requires management to make estimates and assumptions
that affect the reported amounts therein. Due to the inherent uncertainty
involved in making estimates, actual results in future periods may differ from
those estimates. The results of operations for the period ended November 30,
2001 are not necessarily indicative of the results to be expected for any
subsequent quarter or for the entire fiscal year ending May 31, 2002. The
condensed financial statements and notes are presented as permitted by the
requirements for Form 10-Q and do not contain certain information included in
the Companys annual financial statements and notes. These condensed
consolidated financial statements should be read in conjunction with the
Companys Prospectus filed with the Securities and Exchange Commission on
December 6, 2001.

2. OTHER GENERAL EXPENSES

The following table presents a summary of other general expenses:

|                                         |  |                    |     |  |                  |  |   |      |  |   |      |  |  |  |   | 
|---------------------------------------- |  | ------------------ | --- |  | ---------------- |  | - | ---- |  | - | ---- |  |  |  | - | 
|                                         |  | Three Months Ended |     |  | Six Months Ended | 
|                                         |  | November 30,       |     |  | November 30,     | 
|                                         |  |                    |     |  |                  | 
|                                         |  | 2001               |     |  | 2000             |  |   | 2001 |  |   | 2000 | 
|                                         |  |                    |     |  |                  |  |   |      |  |   |      | 
|Business process improvement initiatives |  | $                  | 169 |  |                  |  |  |      |  | $ | 655  |  |  |  |  | 
|                                         |  |                    |     |  |                  |  |   |      |  |   |      | 
|Total other general expenses             |  | $                  | 169 |  |                  |  |  |      |  | $ | 655  |  |  |  |  | 
|                                         |  |                    |     |  |                  |  |   |      |  |   |      | 

During the three and six months ended November 30, 2001, the Company recognized
$169 and $655, respectively, in expenses related to business process
improvement initiatives designed to prepare the Company for an initial public
offering. Such costs are expensed as incurred.

3. PER SHARE DATA

Basic net income per share is computed using the net income applicable to
common stockholders and the weighted-average number of shares of common stock
outstanding. Diluted earnings per share reflect the potential dilution of
securities that could share in the earnings of an entity.

The following table sets forth the computation of basic and diluted net income
per share:

|                                        |                                               |   |                    |        |  |                  |      |        |      |   |      |        |  |   |      |        | 
|--------------------------------------- | --------------------------------------------- | - | ------------------ | ------ |  | ---------------- | ---- | ------ | ---- | - | ---- | ------ |  | - | ---- | ------ | 
|                                        |                                               |   | Three Months Ended |        |  | Six Months Ended |     
|                                        |                                               |   | November 30,       |        |  | November 30,     |     
|                                        |                                               |   |                    |        |  |                  |     
|                                        |                                               |   | 2001               |        |  | 2000             |      |        | 2001 |   |      | 2000   | 
|                                        |                                               |   |                    |        |  |                  |      |        |      |   |      |        | 
|Basic earnings per share computation:   |                                               |   |                    |        |  |                  |      |        |      |   |      |        |  |   |      |       
|                                        | Net income applicable to common stockholders  |   | $                  | 90     |  |                  | $    | 1,693  |      |   | $    | 1,189  |  |   | $    | 6,928  | 
|                                        |                                               |   |                    |        |  |                  |      |        |      |   |      |        | 
|                                        | Weighted average common shares                |   |                    | 67,040 |  |                  |      | 71,214 |      |   |      | 66,882 |  |   |      | 71,005 | 
|                                        |                                               |   |                    |        |  |                  |      |        |      |   |      |        | 
|                                        | Basic net income per share                    |   | $                  | 0.00   |  |                  | $    | 0.02   |      |   | $    | 0.02   |  |   | $    | 0.10   | 
|                                        |                                               |   |                    |        |  |                  |      |        |      |   |      |        | 
|Diluted earnings per share computation: |                                               |   |                    |        |  |                  |      |        |      |   |      |        |  |   |      |       
|                                        | Net income                                    |   | $                  | 138    |  |                  | $    | 1,693  |      |   | $    | 1,285  |  |   | $    | 6,928  | 
|                                        |                                               |   |                    |        |  |                  |      |        |      |   |      |        | 
|Shares calculation:                     |                                               |   |                    |        |  |                  |      |        |      |   |      |        |  |   |      |       
|                                        | Weighted average common shares                |   |                    | 67,040 |  |                  |      | 71,214 |      |   |      | 66,882 |  |   |      | 71,005 | 
|                                        | Effect of dilutive preferred stock            |   |                    | 10,316 |  |                  |      |       |      |   |      | 10,316 |  |   |      |       | 
|                                        | Effect of dilutive stock options and warrants |   |                    | 14,306 |  |                  |      | 12,514 |      |   |      | 14,472 |  |   |      | 11,268 | 
|                                        |                                               |   |                    |        |  |                  |      |        |      |   |      |        | 
|                                        | Weighted average common shares  diluted      |   |                    | 91,662 |  |                  |      | 83,728 |      |   |      | 91,670 |  |   |      | 82,273 | 
|                                        |                                               |   |                    |        |  |                  |      |        |      |   |      |        | 
|Diluted net income per share            |                                               | $ | 0.00               |        |  | $                | 0.02 |        |      | $ | 0.01 |        |  | $ | 0.08 |       
|                                        |                                               |   |                    |        |  |                  |      |        |      |   |      |        | 

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Diluted net income per share for the three and six months ended November 30,
2001 has been calculated using the net income before accretion on preferred
stock and assumes the conversion of all outstanding shares of preferred stock
into shares of common stock, as if the shares had converted immediately upon
their issuance.

4.     COMPREHENSIVE INCOME

The following table presents the calculation of comprehensive income:

|                     |                        |   |                    |   |  |                  |       |     |      |   |       |      |   |   |       |      |  
|-------------------- | ---------------------- | - | ------------------ | - |  | ---------------- | ----- | --- | ---- | - | ----- | ---- | - | - | ----- | ---- | -
|                     |                        |   | Three Months Ended |   |  | Six Months Ended |      
|                     |                        |   | November 30,       |   |  | November 30,     |      
|                     |                        |   |                    |   |  |                  |      
|                     |                        |   | 2001               |   |  | 2000             |       |     | 2001 |   |       | 2000 |  
|                     |                        |   |                    |   |  |                  |       |     |      |   |       |      |  
|Net income           |                        | $ | 138                |   |  | $                | 1,693 |     |      | $ | 1,285 |      |   | $ | 6,928 |     
|                     | Translation adjustment |   |                    | 9 |  |                  |       | (14 | )    |   |       | (464 | ) |   |       | (307 | )
|                     |                        |   |                    |   |  |                  |       |     |      |   |       |     
|Comprehensive income |                        | $ | 147                |   |  | $                | 1,679 |     |      | $ | 821   |      |   | $ | 6,621 |     
|                     |                        |   |                    |   |  |                  |       |     |      |   |       |     

5. COMMITMENTS AND CONTINGENCIES

ESOP participants have the right to require the Company to repurchase any ESOP
shares they receive at a price determined by the most recent independent
valuation of the Companys common stock. Consequently, shares held by the ESOP
participants are considered mandatorily redeemable common stock and are
recorded at the estimated fair market value at each balance sheet date. Upon
the closing of the Companys initial public offering (see Note 11), the
repurchase feature terminated for all but 193 shares.

6. SEGMENT AND GEOGRAPHIC AREAS

The Company views its operations and manages its business as one segment, the
development and marketing of computer software and related services. Factors
used to identify the Companys single operating segment include the
organizational structure of the Company and the financial information available
for evaluation by the chief operating decision maker in making decisions about
how to allocate resources and assess performance. The Company markets its
products and services through the Companys offices in the United States and
its wholly-owned branches and subsidiaries operating in Canada, the United
Kingdom, Germany, France and the Netherlands.

The following table presents a summary of revenues and long-lived assets
summarized by geographic region:

|          |                          |  |                    |        |  |                  |   |        |      |  |   |         |  |  |   |         | 
|--------- | ------------------------ |  | ------------------ | ------ |  | ---------------- | - | ------ | ---- |  | - | ------- |  |  | - | ------- | 
|          |                          |  | Three Months Ended |        |  | Six Months Ended |  
|          |                          |  | November 30,       |        |  | November 30,     |  
|          |                          |  |                    |        |  |                  |  
|          |                          |  | 2001               |        |  | 2000             |   |        | 2001 |  |   | 2000    | 
|          |                          |  |                    |        |  |                  |   |        |      |  |   |         | 
|Revenues: |                          |  |                    |        |  |                  |   |        |      |  |   |         |  |  |   |        
|          | Domestic operations      |  | $                  | 86,576 |  |                  | $ | 76,043 |      |  | $ | 181,488 |  |  | $ | 154,641 | 
|          | International operations |  |                    | 8,548  |  |                  |   | 6,287  |      |  |   | 14,548  |  |  |   | 11,870  | 
|          |                          |  |                    |        |  |                  |   |        |      |  |   |         | 
|          | Consolidated             |  | $                  | 95,124 |  |                  | $ | 82,330 |      |  | $ | 196,036 |  |  | $ | 166,511 | 
|          |                          |  |                    |        |  |                  |   |        |      |  |   |         | 

|                   |                          |  |          |        |  |         |   |        | 
|------------------ | ------------------------ |  | -------- | ------ |  | ------- | - | ------ | 
|                   |                          |  | Nov. 30, |        |  | May 31, |  
|                   |                          |  | 2001     |        |  | 2001    |  
|                   |                          |  |          |        |  |         |  
|Long-lived assets: |                          |  |          |        |  |         |   |       
|                   | Domestic operations      |  | $        | 63,825 |  |         | $ | 28,568 | 
|                   | International operations |  |          | 740    |  |         |   | 663    | 
|                   |                          |  |          |        |  |         |  
|                   | Consolidated             |  | $        | 64,565 |  |         | $ | 29,231 | 
|                   |                          |  |          |        |  |         |  

7. ACQUISITION OF ACCOUNT4, INC.

On July 11, 2001, the Company completed the acquisition of Account4, Inc.
(Account4). Account4 is a provider of web-based professional services
automation software that enables services organizations to more efficiently
manage their businesses and workforce. As a result of the acquisition, the
Company will expand its software solution for professional service
organizations to include automated functions such as forecasting and planning,
scheduling and assignments, skills and resource management, time and expense
reporting, project management and invoicing. The acquisition of Account4 is
intended to enhance the Companys strategies of focusing on targeted vertical
markets and providing additional value-added products and services to its
customers. In this transaction, the Company acquired all the outstanding
securities of Account4 in exchange for $27,500, including the repayment of
assumed debt. The results of Account4s operations have been included in the
consolidated financial statements since July 11, 2001.

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The transaction was accounted for under the purchase method of accounting and
accordingly, the assets and liabilities acquired were recorded at their
estimated fair values at the effective date of the acquisition. The following
table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of the acquisition.

|                       |                           |   |                  |        |  
|---------------------- | ------------------------- | - | ---------------- | ------ | -
|                       |                           |   | At July 11, 2001 |       
|                       |                           |   |                  |       
|Current assets         |                           | $ | 4,297            |       
|Intangibles assets     |                           |   | 13,400           |       
|Goodwill               |                           |   | 17,943           |       
|Other long-term assets |                           |   | 214              |       
|                       |                           |   |                 
|                       | Total assets acquired     |   |                  | 35,854 |  
|Current liabilities    |                           |   | (2,657           | )     
|Deferred tax liability |                           |   | (5,670           | )     
|Long-term debt         |                           |   | (27              | )     
|                       |                           |   |                 
|                       | Total liabilities assumed |   |                  | (8,354 | )
|                       |                           |   |                 
|                       | Net assets acquired       |   | $                | 27,500 |  
|                       |                           |   |                 

The intangible assets of $13,400 have a weighted-average useful life of
approximately 7 years. The intangible assets that make up that amount include
acquired technology of $5,100 (5-year useful life) and customer list of $8,300
(10-year useful life). No amounts were allocated to in-process research and
development, as Account4 did not have any new products in development at the
time of the acquisition. All of the goodwill was assigned to the Companys
single reporting unit, which is its sole operating segment. In accordance with
the provisions of SFAS No. 142, goodwill generated from the Account4
acquisition is not amortized.

The following table presents the consolidated results of operations on an
unaudited pro forma basis as if the acquisition of Account4 had taken place at
the beginning of the periods presented:

|                                    |  |                    |        |  |                  |   |        |      |  |   |         |   |  |   |         | 
|----------------------------------- |  | ------------------ | ------ |  | ---------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------- | 
|                                    |  | Three Months Ended |        |  | Six Months Ended |  
|                                    |  | November 30,       |        |  | November 30,     |  
|                                    |  |                    |        |  |                  |  
|                                    |  | 2001               |        |  | 2000             |   |        | 2001 |  |   | 2000    |  
|                                    |  |                    |        |  |                  |   |        |      |  |   |         |  
|Total revenues                      |  | $                  | 95,124 |  |                  | $ | 84,373 |      |  | $ | 196,777 |   |  | $ | 170,980 | 
|Net income (loss)                   |  | $                  | 138    |  |                  | $ | (1,078 | )    |  | $ | (620    | ) |  | $ | 3,317   | 
|Earnings (loss) per share  basic   |  | $                  | 0.00   |  |                  | $ | (0.02  | )    |  | $ | (0.01   | ) |  | $ | 0.05    | 
|Earnings (loss) per share  diluted |  | $                  | 0.00   |  |                  | $ | (0.01  | )    |  | $ | (0.01   | ) |  | $ | 0.04    | 

The unaudited pro forma results of operations are for comparative purposes only
and do not necessarily reflect the results that would have occurred had the
acquisition occurred at the beginning of the periods presented or the results
which may occur in the future. The results of operations of Account4 for the
three and six months ended November 30, 2000 included non-cash stock
compensation expenses of $3,045 and $3,543, respectively.

8. GOODWILL AND OTHER INTANGIBLE ASSETS  ADOPTION OF STATEMENTS 141 AND 142

Effective June 1, 2001, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 141, Business Combinations and No. 142, Goodwill and
Other Intangible Assets. Under these standards, the Company ceased amortizing
goodwill that had a net book value of $4,259 as of June 1, 2001, which is
expected to reduce 2002 annual amortization expense by approximately $1,549.
Adoption of the new standards resulted in not recognizing $387 and $774 in
goodwill amortization expense for the three and six months ended November 30,
2001, respectively, that would have been recognized had the old standards been
in effect. The same periods last year included $250 and $500 in goodwill
amortization expense for the three and six months ended November 30, 2000,
respectively, under the old standards. See additional SFAS No. 141 and 142
disclosures related to the Account4 acquisition in Note 7.

The following table presents the impact of the new standards (only goodwill
amortization and related tax effects) on operating income, net income and
earnings per share, as if they had been in effect for the three and six months
ended November 30, 2000:

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|                             |  |                    |      |  |                  |   |       |             |  |   |             |  |  |             |       |  |             |   |        |  |  |   |        | 
|---------------------------- |  | ------------------ | ---- |  | ---------------- | - | ----- | ----------- |  | - | ----------- |  |  | ----------- | ----- |  | ----------- | - | ------ |  |  | - | ------ | 
|                             |  | Three Months Ended |      |  | Six Months Ended |  
|                             |  | November 30,       |      |  | November 30,     |  
|                             |  |                    |      |  |                  |  
|                             |  | 2001               |      |  | 2000             |   |       | 2000        |  |   | 2001        |  |  | 2000        |       |  | 2000        |  
|                             |  |                    |      |  |                  |   |       |             |  |   |             |  |  |             |       |  |             |  
|                             |  | As Reported        |      |  | As Adjusted      |   |       | As Reported |  |   | As Reported |  |  | As Adjusted |       |  | As Reported |  
|Operating income             |  | $                  | 691  |  |                  | $ | 2,752 |             |  | $ | 2,502       |  |  | $           | 3,165 |  |             | $ | 11,766 |  |  | $ | 11,266 | 
|Net income                   |  | $                  | 138  |  |                  | $ | 1,838 |             |  | $ | 1,693       |  |  | $           | 1,285 |  |             | $ | 7,218  |  |  | $ | 6,928  | 
|Earnings per
share  basic   |  | $                  | 0.00 |  |                  | $ | 0.03  |             |  | $ | 0.02        |  |  | $           | 0.02  |  |             | $ | 0.10   |  |  | $ | 0.10   | 
|Earnings per
share  diluted |  | $                  | 0.00 |  |                  | $ | 0.02  |             |  | $ | 0.02        |  |  | $           | 0.01  |  |             | $ | 0.09   |  |  | $ | 0.08   | 

Acquired intangible assets subject to amortization were as follows:

|                    |  |                   |        |  |              |   |     | 
|------------------- |  | ----------------- | ------ |  | ------------ | - | --- | 
|                    |  | November 30, 2001 |       
|                    |  |                   |       
|                    |  | Gross Carrying    |        |  | Accumulated  |  
|                    |  | Amounts           |        |  | Amortization |  
|                    |  |                   |        |  |              |  
|Acquired technology |  | $                 | 5,100  |  |              | $ | 425 | 
|Customer list       |  |                   | 8,300  |  |              |   | 345 | 
|                    |  |                   |        |  |              |  
|                    |  | $                 | 13,400 |  |              | $ | 770 | 
|                    |  |                   |        |  |              |  

There were no intangible assets subject to amortization at May 31, 2001. For
the three and six months ended November 30, 2001, amortization expense for
intangible assets was $466 and $770, respectively. The estimated annual
amortization expense for intangible assets is approximately $1,695 for the
fiscal year ending May 31, 2002, $1,850 for the fiscal years ending May 31,
2003 thru 2006 and $915 for the fiscal year ending May 31, 2007.

9. STOCKHOLDERS EQUITY

Effective August 8, 2001, the Companys Board of Directors authorized a
1.387-for-1 stock split of the then issued and outstanding shares of common
stock. All references to common stock and per share data included in the
financial statements and related notes have been adjusted to give retroactive
effect to the stock split.

10. NEW ACCOUNTING PRONOUNCEMENTS

In October 2001, the FASB (Financial Accounting Standards Board) approved SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
This statement addresses financial accounting and reporting for the impairment
of long-lived assets and for long-lived assets to be disposed of and supersedes
SFAS No. 121 and APB Opinion No. 30, Reporting the Results of Operations 
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions.
SFAS No. 144 is effective for fiscal years beginning after December 15, 2001,
and interim periods within those fiscal years, with early application
encouraged. The effects of the adoption on the Companys financial position
and results of operations are unknown.

11. SUBSEQUENT EVENT

The Company closed its initial public offering on December 12, 2001, at which
time the Company issued 13,675 shares of common stock from the primary
offering, 10,316 shares of common stock upon conversion of all of the
outstanding series A preferred stock, 1,661 shares of common stock as part of
the over-allotment option exercise and 439 shares of common stock issued upon
the exercise of warrants and sold as part of the over-allotment option
exercise. After giving effect to the issuance of these shares on December 12,
2001, the Company had 93,316 shares of common stock and 106,825 shares of
fully diluted common stock outstanding. The Company received proceeds, net of
commissions, of $200,750 in the initial public offering including exercise of
the over-allotment option in full, before giving effect to non-commission
related offering expenses of approximately $2,900. Proceeds from the initial
public offering are invested in interest-bearing, investment grade securities.
The Company used $10,240 proceeds from the offering to repay senior
subordinated convertible notes. Due to the repayment of the notes prior to the
scheduled maturity date, the Company will record an extraordinary charge in the
third quarter for the total amount of the unamortized debt issuance costs and
the discount on the notes of $1,393, net of income tax benefit. Additionally,
as a result of the conversion of the series A preferred stock, the Company will
recognize a charge to net income available to common stockholders for the
unamortized value of the beneficial conversion feature of our preferred stock
in the third quarter of fiscal 2002. This charge will adversely impact basic
earnings per share in the period of conversion. As of November 30, 2001, the
unamortized value of the deemed beneficial conversion feature of our preferred
stock was $29,996.

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##### Table of Contents






ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

In addition to historical information, this Quarterly Report contains
forward-looking statements. The forward-looking statements are made in
reliance upon safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those reflected in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in the
section entitled Managements Discussion and Analysis of Financial Condition
and Results of Operations. Readers are cautioned not to place undue reliance
on these forward-looking statements, which reflect managements opinions only
as of the date hereof. The Company undertakes no obligation to revise or
publicly release the results of any revision to these forward-looking
statements. Readers should carefully review the risk factors described in this
report on Form 10-Q and in other documents the Company files from time to time
with the Securities and Exchange Commission, including the Risk Factors
section of the Companys prospectus dated December 6, 2001, filed with the
Commission pursuant to Rule 424(b) of the Securities Act of 1933, as amended,
in connection with the Registration Statement No. 333-63394 on Form S-1 filed
with the Commission on June 20, 2001, together with any amendments thereto.

Recent Events

On December 12, 2001, we closed our initial public offering. See Note 11
to the condensed consolidated financial statements.

On July 11, 2001, we completed the acquisition of Account4, Inc.
(Account4). See Note 7 to the condensed consolidated financial statements.

Results of Operations

The following table sets forth certain line items in our consolidated statement
of operations as a percentage of total revenues for the periods indicated:

|                           |              |                                      |                          |      |      |                    |      |      |                  |       |      |      |      |       |      |      |      |       |  | 
|-------------------------- | ------------ | ------------------------------------ | ------------------------ | ---- | ---- | ------------------ | ---- | ---- | ---------------- | ----- | ---- | ---- | ---- | ----- | ---- | ---- | ---- | ----- |  | 
|                           |              |                                      |                          |      |      | Three Months Ended |      |      | Six Months Ended |      
|                           |              |                                      |                          |      |      | Nov. 30,           |      |      | Nov. 30,         |      
|                           |              |                                      |                          |      |      |                    |      |      |                  |      
|                           |              |                                      |                          |      |      | 2001               |      |      | 2000             |       |      | 2001 |      |       | 2000 |     
|                           |              |                                      |                          |      |      |                    |      |      |                  |       |      |      |      |       |      |     
|Revenues:                  |              |                                      |                          |      |      |                    |      |      |                  |       |      |      |      |       |      |     
|                           | License fees |                                      |                          | 31.6 | %    |                    |      | 31.3 | %                |       |      | 33.3 | %    |       |      | 33.7 | %   
|                           | Services     |                                      |                          | 68.4 |      |                    |      | 68.7 |                  |       |      | 66.7 |      |       |      | 66.3 |     
|                           |              |                                      |                          |      |      |                    |      |      |                  |       |      |     
|                           |              |                                      | Total revenues           |      |      | 100.0              |      |      |                  | 100.0 |      |      |      | 100.0 |      |      |      | 100.0 | 
|Cost of revenues:          |              |                                      |                          |      |      |                    |      |      |                  |       |      |      |      |       |      |     
|                           |              | Cost of license fees                 |                          |      | 5.3  |                    |      |      | 5.4              |       |      |      | 8.0  |       |      |      | 5.2  |      
|                           |              | Cost of services                     |                          |      | 36.1 |                    |      |      | 35.0             |       |      |      | 34.9 |       |      |      | 33.5 |      
|                           |              |                                      |                          |      |      |                    |      |      |                  |       |      |     
|                           |              |                                      | Total cost of revenues   |      |      | 41.4               |      |      |                  | 40.4  |      |      |      | 42.9  |      |      |      | 38.7  | 
|Gross margin               |              |                                      | 58.6                     |      |      |                    | 59.6 |      |                  |       | 57.1 |      |      |       | 61.3 |     
|Operating expenses:        |              |                                      |                          |      |      |                    |      |      |                  |       |      |      |      |       |      |     
|                           |              | Research and development             |                          |      | 17.2 |                    |      |      | 15.2             |       |      |      | 16.9 |       |      |      | 14.6 |      
|                           |              | Sales and marketing                  |                          |      | 31.9 |                    |      |      | 32.4             |       |      |      | 30.8 |       |      |      | 31.5 |      
|                           |              | General and administrative           |                          |      | 8.4  |                    |      |      | 9.0              |       |      |      | 7.3  |       |      |      | 8.4  |      
|                           |              | Other general expenses               |                          |      | 0.2  |                    |      |      |                 |       |      |      | 0.3  |       |      |      |     |      
|                           |              | Amortization of acquired intangibles |                          |      | 0.2  |                    |      |      |                 |       |      |      | 0.2  |       |      |      |     |      
|                           |              |                                      |                          |      |      |                    |      |      |                  |       |      |     
|                           |              |                                      | Total operating expenses |      |      | 57.9               |      |      |                  | 56.6  |      |      |      | 55.5  |      |      |      | 54.5  | 
|                           |              |                                      |                          |      |      |                    |      |      |                  |       |      |     
|Operating income           |              |                                      | 0.7                      |      |      |                    | 3.0  |      |                  |       | 1.6  |      |      |       | 6.8  |     
|Other income (expense)     |              |                                      | (0.5                     | )    |      |                    | 0.6  |      |                  |       | (0.5 | )    |      |       | 0.4  |     
|                           |              |                                      |                          |      |      |                    |      |      |                  |       |      |     
|Income before income taxes |              |                                      | 0.2                      |      |      |                    | 3.6  |      |                  |       | 1.1  |      |      |       | 7.2  |     
|Provision for income taxes |              |                                      | 0.1                      |      |      |                    | 1.5  |      |                  |       | 0.4  |      |      |       | 3.0  |     
|                           |              |                                      |                          |      |      |                    |      |      |                  |       |      |     
|Net income                 |              |                                      | 0.1                      | %    |      |                    | 2.1  | %    |                  |       | 0.7  | %    |      |       | 4.2  | %   
|                           |              |                                      |                          |      |      |                    |      |      |                  |       |      |     

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Three Months Ended November 30, 2001 Compared To Three Months Ended November 30, 2000

Revenues

Total Revenues.Total revenues increased to $95.1 million for the three
months ended November 30, 2001 from $82.3 million for the three months ended
November 30, 2000, or 15.5%. The increase was due to a $4.3 million increase
in license fees revenues and a $8.5 million increase in services revenues.

License Fees. Revenues from license fees increased to $30.1 million for
the three months ended November 30, 2001 from $25.8 million for the three
months ended November 30, 2000, or 16.6%. Revenues from license fees as a
percentage of total revenues for the three months ended November 30, 2001 and
2000 were 31.6% and 31.3%, respectively. These increases were primarily due to
demand for enterprise applications software from customers in our targeted
vertical markets and an increase in average sales price per customer.

Services. Revenues from services increased to $65.0 million for the three
months ended November 30, 2001 from $56.5 million for the three months ended
November 30, 2000, or 15.0%. The increase was primarily due to an increase in
consulting revenues generated from increased license sales in prior quarters
and an increase in maintenance revenues, reflecting an expanded customer base.
Services revenues as a percentage of total revenues for the three months ended
November 30, 2001 and 2000 were 68.4% and 68.7%, respectively. The decrease as
a percentage of revenues was primarily a result of the increase in revenues
from license fees as a percentage of revenues and a decrease in services
activity primarily due to the September 11, 2001 terrorist attacks.

Cost of Revenues

Cost of License Fees. Cost of license fees increased to $5.0 million for
the three months ended November 30, 2001 from $4.5 million for the three months
ended November 30, 2000, or 12.3%. Cost of license fees included amortization
expense of acquired intangibles related to the purchase of Account4 of $0.3
million for the three months ended November 30, 2001. Cost of license fees as
a percentage of total revenues for the three months ended November 30, 2001 and
2000 were 5.3% and 5.4%, respectively. Gross margin on revenue from license
fees was 83.3% and 82.7% for the three months ended November 30, 2001 and 2000,
respectively. The increase in gross margin was primarily due to a decrease in
the proportion of third party product sales in our revenue mix.

Cost of Services. Cost of services increased to $34.4 million for the
three months ended November 30, 2001 from $28.8 million for the three months
ended November 30, 2000, or 19.3%. The increase in expenses was primarily due
to higher compensation expenses and other related costs from additional
headcount. Cost of services included non-cash charges for stock-based
compensation of $0.1 million for the three months ended November 30, 2001.
Cost of services as a percentage of total revenues for the three months ended
November 30, 2001 and 2000 were 36.1% and 35.0%, respectively. Gross margin on
services revenues was 47.2 % and 49.1% for the three months ended November 30,
2001 and 2000, respectively. The increase in cost of services as a percentage
of total revenues and the decrease in gross margin on services were primarily
due to increased utilization of third-party consultants and lower employee
utilization due to the September 11, 2001 terrorist attacks.

Operating Expenses

Research and Development. Research and development expenses increased to
$16.3 million for the three months ended November 30, 2001 from $12.5 million
for the three months ended November 30, 2000, or 30.6%. Research and
development expenses included non-cash charges for stock-based compensation of
$0.4 million for the three months ended November 30, 2001. Research and
development expenses as a percentage of total revenues for the three months
ended November 30, 2001 and 2000 were 17.2% and 15.2%, respectively. The
increase in expenses was primarily due to higher compensation expenses and
other related costs from additional headcount.

Sales and Marketing. Sales and marketing expenses increased to $30.4
million for the three months ended November 30, 2001 from $26.7 million for the
three months ended November 30, 2000, or 13.8%. Sales and marketing expenses
included non-cash charges for stock-based compensation of $0.7 million for the
three months ended November 30, 2001. Sales and marketing expenses as a
percentage of total revenues for the three months ended November 30, 2001 and
2000 were 31.9% and 32.4%, respectively. The increase in expenses was
primarily due to higher compensation expenses and other related costs from
additional headcount.

General and Administrative. General and administrative expenses increased
to $8.0 million for the three months ended November 30, 2001 from $7.4 million
for the three months ended November 30, 2000, or 8.5%. General and
administrative expenses included non-cash charges for stock-based compensation
of $1.1 million and $0.5 million for the three months ended November 30, 2001
and 2000, respectively. Additionally, general and administrative expenses
included a lease abandonment expense of $0.2 million for the three months ended
November 30, 2000. General and administrative expenses as a percentage of
total revenues for the three months ended November 30, 2001 and 2000 were 8.4%
and 9.0%, respectively. The increase in expenses was primarily due to higher
compensation expenses and other related costs from additional headcount.

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Other General Expenses.Other general expenses for the three months ended
November 30, 2001 consisted of $0.2 million in consulting fees related to
business process improvement initiatives designed to prepare our organization
for our initial public offering.

Amortization of Acquired Intangibles.Amortization of acquired
intangibles for the three months ended November 30, 2001 consisted of $0.2
million in amortization expense related to the purchase of Account4 in July
2001.

Other Income (Expense)

Other expense, net was $0.5 million for the three months ended
November 30, 2001 compared with $0.4 million other income, net for the three months
ended November 30, 2000. Other expense, net and other income, net as a
percentage of total revenues for the three months ended November 30, 2001 and
2000 were 0.5% and 0.6%, respectively. We earned interest income of $0.2
million and $0.4 million for the three months ended November 30, 2001 and 2000,
respectively. This was offset by interest expense of $0.7 million and a
nominal amount for the three months ended November 30, 2001 and 2000,
respectively. This increase in interest expense was primarily due to the
interest on the senior subordinated convertible notes and accretion on the
warrants issuable upon conversion of the senior subordinated convertible notes
issued in connection with our recapitalization.

Provision for Income Taxes

We recognized an income tax provision of $0.1 million for the three months
ended November 30, 2001 compared to $1.2 million for the three months ended
November 30, 2000. Our income tax provision is comprised primarily of federal
and state taxes. Our effective rate was 40.0% and 42.0% for the three months
ended November 30, 2001 and 2000, respectively. The decrease in the effective
tax rate was primarily due to a decrease in permanent non-deductible expenses.

Six Months Ended November 30, 2001 Compared To Six Months Ended November 30, 2000

Revenues

Total Revenues.Total revenues increased to $196.0 million for the six
months ended November 30, 2001 from $166.5 million for the six months ended
November 30, 2000, or 17.7%. The increase was due to $9.1 million increase in
license fees revenues and a $20.4 million increase in services revenues.

License Fees. Revenues from license fees increased to $65.2 million for
the six months ended November 30, 2001 from $56.1 million for the six months
ended November 30, 2000, or 16.2%. The increase was primarily due to demand
for enterprise applications software from customers in our targeted vertical
markets, an increase in average sales price per customer and a reduction in
revenues deferred on new contracts compared with the prior period. Revenues
from license fees as a percentage of total revenues for the six months ended
November 30, 2001 and 2000 were 33.3% and 33.7%, respectively.

Services. Revenues from services increased to $130.8 million for the six
months ended November 30, 2001 from $110.4 million for the six months ended
November 30, 2000, or 18.5%. The increase in revenues was primarily due to an
increase in consulting revenues generated from increased license sales in the
prior quarters and an expanded customer base. Services revenues as a
percentage of total revenues for the six months ended November 30, 2001 and
2000 were 66.7% and 66.3%, respectively.

Cost of Revenues

Cost of License Fees. Cost of license fees increased to $15.7 million for
the six months ended November 30, 2001 from $8.7 million for the six months
ended November 30, 2000, or 81.1%. Cost of license fees included amortization
expense of acquired intangibles related to the purchase of Account4 of $0.4
million for the six months ended November 30, 2001. Cost of license fees as a
percentage of total revenues for the six months ended November 30, 2001 and
2000 were 8.0% and 5.2%, respectively. Gross margin on revenue from license
fees was 75.9% and 84.5% for the six months ended November 30, 2001 and 2000,
respectively. The increase in cost of license fees as a percentage of total
revenues and the decrease in gross margin on license fees were primarily
attributable to an increased proportion of sales of third-party products in our
revenue mix.

Cost of Services. Cost of services increased to $68.4 million for the six
months ended November 30, 2001 from $55.8 million for the six months ended
November 30, 2000, or 22.5%. The increase in expenses was primarily due to
higher compensation expenses and other related costs from additional headcount
and increases in third-party costs due to greater utilitzation of third-party
consultants. Cost of services included non-cash charges for

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stock-based compensation of $0.2 million for the six months ended November 30, 2001.
The cost of services as a percentage of total revenues for the six months ended
November 30, 2001 and 2000 were 34.9% and 33.5%, respectively. Gross margin on
services revenues was 47.7 % and 49.4% for the six months ended November 30,
2001 and 2000, respectively. The increase in cost of services as a percentage
of total revenues and the decrease in gross margin on services were primarily
due to increased utilization of third-party consultants and lower employee
utilization due to the September 11, 2001 terrorist attacks.

Operating Expenses

Research and Development. Research and development expenses increased to
$33.1 million for the six months ended November 30, 2001 from $24.3 million for
the six months ended November 30, 2000, or 36.2%. Research and development
expenses included non-cash charges for stock-based compensation of $0.8 million
for the six months ended November 30, 2001. Research and development expenses
as a percentage of total revenues for the six months ended November 30, 2001
and 2000 were 16.9% and 14.6%, respectively. The increase in expenses was
primarily due to higher compensation expenses and other related costs from
additional headcount.

Sales and Marketing. Sales and marketing expenses increased to $60.4
million for the six months ended November 30, 2001 from $52.3 million for the
six months ended November 30, 2000, or 15.4%. Sales and marketing expenses
included non-cash charges for stock-based compensation of $1.5 million for the
six months ended November 30, 2001. Sales and marketing expenses as a
percentage of total revenues for the six months ended November 30, 2001 and
2000 were 30.8% and 31.5%, respectively. The increase in expenses was
primarily due to higher compensation expenses and other related costs from
additional headcount.

General and Administrative. General and administrative expenses increased
to $14.2 million for the six months ended November 30, 2001 from $14.0 million
for the six months ended November 30, 2000, or 1.1%. General and
administrative expenses included non-cash charges for stock-based compensation
of $2.5 million and $0.5 million for the six months ended November 30, 2001 and
2000, respectively. Additionally, general and administrative expenses included
a lease abandonment expense of $0.6 million for the six months ended November
30, 2000. General and administrative expenses as a percentage of total
revenues for the six months ended November 30, 2001 and 2000 were 7.3% and
8.4%, respectively.

Other General Expenses.Other general expenses for the six months ended
November 30, 2001 consisted of $0.7 million in consulting fees related to
business process improvement initiatives designed to prepare our organization
for our initial public offering.

Amortization of Acquired Intangibles.Amortization of acquired
intangibles for the six months ended November 30, 2001 consisted of $0.3
million in amortization expense related to the purchase of Account4 in July
2001.

Other Income (Expense)

Other expense, net was $1.0 million for the six months ended
November 30, 2001 compared with $0.7 million other income, net for the six months ended
November 30, 2000. Other expense, net and other income, net as a percentage of
total revenues for the six months ended November 30, 2001 and 2000 were 0.5%
and 0.4%, respectively. We earned interest income of $0.8 million and $1.1
million for the six months ended November 30, 2001 and 2000, respectively.
This was offset by interest expense of $1.8 and $0.4 million for the six months
ended November 30, 2001 and 2000, respectively. The increase in interest
expense was due to the interest on the senior subordinated convertible notes
and accretion on the warrants issuable upon conversion of the senior
subordinated convertible notes issued in connection with our recapitalization.

Provision for Income Taxes

We recognized an income tax provision of $0.9 million for the six months
ended November 30, 2001 compared to $5.0 million for the six months ended
November 30, 2000. Our income tax provision is comprised primarily of federal
and state taxes. Our effective rate was 40.0% and 42.0% for the six months
ended November 30, 2001 and 2000, respectively. The decrease in the effective
tax rate was primarily due to a decrease in permanent non-deductible expenses.

Liquidity and Capital Resources

We finance our operations primarily with cash generated through
operations. As of November 30, 2001, we had $28.1 million in cash, cash
equivalents and marketable securities and $18.0 million in working capital.

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Net cash used in operating activities was $15.2 million and $0.6 million
for the six months ended November 30, 2001 and 2000, respectively. The $15.2
million use of cash was primarily due to an increase in accounts receivable, a
decrease in deferred revenue and a decrease in income taxes payable.

Net cash used in investing activities was $20.2 million and $2.0 million
for the six months ended November 30, 2001 and 2000, respectively. Our primary
use of cash for the six months ended November 30, 2001 was $26.0 million,
related to the acquisition of Account4. We have generally funded capital
expenditures through the use of cash generated through operations or bank
loans. We expect that capital expenditures will continue to increase in the
future as we make additional investments in operations.

Net cash provided by financing activities was $0.6 million for the six
months ended November 30, 2001. Net cash used by financing activities was $18.9
million for the six months ended November 30, 2000, due primarily to the
$19.0 million payment of debt.

On September 4, 2001, the Company increased its revolving credit facility
to $25.0 million and extended its term to September 30, 2003.

On December 12, 2001, we closed our initial public offering. We received
proceeds, net of commissions, of $200.8 million in the initial public offering
including exercise of the over-allotment option in full, before giving effect
to non-commission related offering expenses of approximately $2.9 million.
Proceeds from the initial public offering are invested in interest-bearing,
investment grade securities. We used approximately $10.2 million proceeds from
the offering to repay senior subordinated convertible notes.

We believe that cash flow from operations, together with the sale of
common stock from our recently completed initial public offering and borrowings
available under our existing credit facilities will be sufficient to meet our
cash requirements for the foreseeable future.

Factors That May Affect Future Results and Market Price of Stock

An investment in our common stock involves a high degree of risk.
Investors evaluating our company and its business should carefully consider the
factors described below and all other information contained in this report on
Form 10-Q. Any of the following factors could materially harm our business,
operating results and financial condition. Additional factors and uncertainties
not currently known to us or that we currently consider immaterial could also
harm our business, operating results and financial condition. This section
should be read in conjunction with the unaudited Condensed Consolidated
Financial Statements and Notes thereto and Managements Discussion and Analysis
of Financial Condition and Results of Operations included in this report on
Form 10-Q and Managements Discussion and Analysis of Financial Condition and
Results of Operations for the year ended May 31, 2001 contained in the
Companys prospectus dated December 6, 2001, filed with the Commission pursuant
to Rule 424(b) of the Securities Act of 1933, as amended, in connection with
the Registration Statement No. 333-63394 on Form S-1 filed with the Commission
on June 20, 2001, together with any amendments thereto. The Company may make
forward-looking statements from time to time, both written and oral. The actual
results may differ materially from those projected in any such forward-looking
statements due to a number of factors, including those set forth below and
elsewhere in this report on Form 10-Q.

A decline in information technology spending may result in a decrease in our
revenues or lower our growth rate.

A decline in the demand for information technology among our current and
prospective customers may result in decreased revenues or a lower growth rate
for us because our sales depend, in part, on our customers level of funding
for new or additional information technology systems and services. Moreover,
demand for our solutions may be reduced by a decline in overall demand for
computer software and services. A continued economic downturn may cause our
customers to reduce or eliminate information technology spending and cause
price erosion for our solutions, which would substantially reduce the number of
new software licenses we sell and the average sales price for these licenses.
In addition, recent developments, namely the September 11, 2001 terrorist
attacks in the United States and related military actions, as well as future
events or effects occurring in response or in connection to those developments,
may reduce the amount and delay the timing of capital expenditures by
corporations for information technology, such as our software products.
Accordingly, we cannot assure you that we will be able to increase or maintain
our revenues.

Because our customers are concentrated in five targeted service industries, our
operating results may be adversely affected by changes in one or more of these
industries.

As a result of our focus on five targeted services industries, our
financial results depend, in significant part, upon economic conditions in the
healthcare, retail, professional services, financial services and public sector
industries. An economic downturn, or adverse change in the regulatory
environment or business prospects for, one or more of these industries may
decrease our revenues or lower our growth rate. In addition, we must continue
to

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develop industry specific functionality for our solutions, which satisfy
the changing, specialized requirements of prospective customers in our target
industries.

We may experience fluctuations in quarterly revenue that could adversely impact
our stock price and our operating results.

Our actual revenues in a quarter could fall below expectations which could
lead to a decline in our stock price. Our revenues and operating results are
difficult to predict and may fluctuate substantially from quarter to quarter.
Revenues from license fees in any quarter depend substantially upon our
contracting activity and our ability to recognize revenues in that quarter in
accordance with our revenue recognition policies. Our quarterly revenue may
fluctuate and may be difficult to forecast for a variety of reasons, including
the following:



| |  | a significant number of our prospective customers decisions regarding
whether to enter into license agreements with us are made within the
last few weeks of each quarter;                                                                          
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | we have historically had a higher concentration of sales in the second
half of our fiscal year due to the nature of our sales personnel
compensation programs;                                                                                       
| 
| |  | the size of license transactions can vary significantly;                                                                                                                                                                                             
| 
| |  | customers may unexpectedly postpone or cancel orders due to changes in
their strategic priorities, project objectives, budget or personnel;                                                                                                          
| 
| |  | customer evaluations and purchasing processes vary significantly from
company to company, and a customers internal approval and expenditure
authorization process can be difficult and time consuming to complete,
even after selection of a vendor;
| 
| |  | the number, timing and significance of software product enhancements
and new software product announcements by us and our competitors may
affect purchase decisions; and                                                                             
| 
| |  | we may have to defer revenues under our revenue recognition policies.                                                                                                                                                                                

Fluctuation in our quarterly revenues may adversely affect our operating
results. In each fiscal quarter our expense levels, operating costs and hiring
plans are based on projections of future revenues and are relatively fixed. If
our actual revenues fall below expectations we could experience a reduction in
operating results.

Our lengthy and variable sales cycle makes it difficult to predict our
operating results.

It is difficult for us to forecast the timing and recognition of revenues
from sales of our products because our prospective customers often take
significant time evaluating our products before licensing them. The period
between initial customer contact and a purchase by a customer may vary from six
months to more than one year. During the evaluation period, prospective
customers may decide not to purchase or may scale down proposed orders of our
products for various reasons, including:



| |  | reduced demand for enterprise software solutions;
|- |  | -------------------------------------------------
| 
| |  | introduction of products by our competitors;     
| 
| |  | lower prices offered by our competitors;         
| 
| |  | changes in budgets and purchasing priorities; and
| 
| |  | reduced need to upgrade existing systems.        

Our prospective customers routinely require education regarding the use
and benefit of our products. This may also lead to delays in receiving
customers orders.

As with other enterprise software vendors, we may be required to delay revenue
recognition into future periods which could adversely impact our operating
results.

We have in the past had to, and in the future may have to, defer revenue
recognition for license fees due to several factors, including whether:



| |  | license agreements include applications that are under development or other undelivered elements;
|- |  | -------------------------------------------------------------------------------------------------

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| |  | we must deliver services, including significant modifications, customization or complex
interfaces, which could delay product delivery or acceptance;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the transaction involves acceptance criteria or there are identified product-related issues;                                                         
| 
| |  | the transaction involves contingent payment terms or fees;                                                                                           
| 
| |  | a third-party vendor, whose technology is incorporated into our software products, delays
delivery of the final software product to the customer;    
| 
| |  | we are required to accept a fixed-fee services contract; or                                                                                          
| 
| |  | we are required to accept extended payment terms.                                                                                                    

Because of the factors listed above and other specific requirements under
accounting principles generally accepted in the United States for software
revenue recognition, we must have very precise terms in our license agreements
in order to recognize revenue when we initially deliver software or perform
services. Negotiation of mutually acceptable terms and conditions can extend
the sales cycle, and sometimes we do not obtain terms and conditions that
permit revenue recognition at the time of delivery or even as work on the
project is completed.

A number of our competitors are well-established software companies that have
advantages over us.

We face competition from a number of software companies that have
advantages over us due to their larger customer bases, greater name
recognition, long operating and product development history, greater
international presence and substantially greater financial, technical and
marketing resources. These competitors include well-established companies such
as Oracle Corporation, PeopleSoft Inc. and SAP AG, all of which have larger
installed customer bases. Furthermore, Oracle is capable of bundling its
software with its database applications, which underlie a significant portion
of our installed applications.

In addition, we compete with a variety of more specialized software and
services vendors, including:



| |  | Internet software vendors;                                 
|- |  | -----------------------------------------------------------
| 
| |  | single-industry software vendors;                          
| 
| |  | emerging enterprise resource optimization software vendors;
| 
| |  | human resource management software vendors;                
| 
| |  | financial management software vendors; and                 
| 
| |  | outsourced services providers.                             

As a result, the market for enterprise software applications has been and
continues to be intensely competitive. Some competitors have become more
aggressive with their pricing, payment terms and/or issuance of contractual
implementation terms or guarantees. We may be unable to continue to compete
successfully with new and existing competitors without lowering prices or
offering other favorable terms. We expect competition to persist and intensify,
which could negatively impact our operating results and market share.

Changes in the terms on which we license technologies from third-party vendors,
including Siebel Systems, Inc. and Hyperion Solutions Corporation, could result
in the loss of potential revenues or increased costs or delays in the
production and improvement of our products.

We license complementary third-party software products that we incorporate
into, or resell with, our own software products. For example, we have a
relationship with Siebel that allows us to resell customer relationship
management applications as part of our solutions. We also have a strategic
development, marketing and reseller relationship with Hyperion that allows us
to incorporate its technology into our financial suite of products. These
licenses and other technology licenses are subject to periodic renewal and may
include minimum sales requirements. Specifically, the failure to meet such
minimum sales requirements under the Siebel and Hyperion contracts would permit
them to terminate our agreements. A failure to renew, or early termination of,
these licenses could adversely impact our business. If any of the third-party
software vendors change their product offerings or terminate our licenses, we
may lose potential revenues and may need to incur additional development costs.
In addition, if the cost of licensing any of these third-party software
products significantly increases, or if there is a change in the relative mix
of products we offer, our gross margins could significantly decrease. We rely
on existing relationships with software vendors who are also competitors. If
these vendors change their business practices, we may be compelled

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to find
alternative vendors with complementary software, which may not be available on
attractive terms or at all, or may not be as widely accepted or as effective as
the software provided by our existing vendors. Our relationships with these and
other third-party vendors are an important part of our
business, and a deterioration of these relationships could adversely impact our
business and operating results.

A deterioration in our relationship with resellers, systems integrators and
other third parties that market and sell our products could reduce our
revenues.

Our ability to achieve revenue growth will depend in large part on adding
new partners to expand our sales channels, as well as leveraging our
relationships with existing partners. If our relationships with these
resellers, system integrators and strategic and technology partners deteriorate
or terminate, we may lose important sales and marketing opportunities. Our
reseller arrangements from time to time give rise to disputes regarding
marketing strategy, exclusive territories and customer relationships which
could negatively affect our business or result in costly litigation.

Our current and potential customers often rely on third-party systems
integrators to implement and manage new and existing applications. These
systems integrators may increase their promotion of competing enterprise
software applications, or may otherwise discontinue their relationships with or
support of us.

We also may enter into joint arrangements with strategic partners to
develop new software products or extensions, or to sell our software as part of
integrated products. Our business may be adversely affected if these strategic
partners change their business priorities or experience difficulties in their
operations, which in either case causes them to terminate or reduce their
support for the joint arrangements. Furthermore, the financial condition of our
channel partners impacts our business. If our partners are unable to recruit
and adequately train a sufficient number of consulting personnel to support the
implementation of our software products, or they otherwise do not adequately
perform implementation services, we may lose customers. Our relationships with
resellers, systems integrators and other third-party vendors are an important
part of our business, and a deterioration of these relationships could
adversely impact our business and operating results.

We may be unable to retain or attract clients if we do not develop new products
and enhance our current products in response to technological changes.

As a software company, we have been required to migrate our products and
services from mainframe to client-server to web-based environments. In
addition, we have been required to adapt our products to emerging standards for
operating systems and databases. We will be unable to compete effectively if we
are unable to:



| |  | maintain and enhance our technological capabilities to correspond to these emerging
environments and standards;
|- |  | ---------------------------------------------------------------------------------------------------------------
| 
| |  | develop and market products and services that meet changing customer needs; and                                
| 
| |  | anticipate or respond to technological changes on a cost-effective and timely basis.                           

Our core technologies face competition from new or revised technologies
that may render our existing technology less competitive or obsolete, reducing
the demand for our solutions. As a result, we must continually redesign our
products to incorporate these new technologies and to adapt our software
products to operate on, and comply with, evolving industry standards for
hardware and software platforms. In addition, conflicting new technologies
present us with difficult choices of which new technologies to adopt. If we
fail to anticipate or respond adequately to technological developments, or
experience significant delays in product development or introduction, our
business and operating results will be negatively impacted.

In addition, to the extent we determine that new technologies and
equipment are required to remain competitive, the development, acquisition and
implementation of such technologies may require us to make significant capital
investments. We may not be able to obtain capital for these purposes and
investments in new technologies may not result in commercially viable
technological products. The loss of revenue and increased costs to us from such
changing technologies would adversely affect our business and operating
results.

Our programs are deployed in large and complex systems and may contain defects
that are not detected until after our programs have been installed, which could
damage our reputation and cause us to lose customers or incur liabilities.

Our software programs are often deployed in large and complex computer
networks. Because of the nature of these programs, they can only be fully
tested for reliability when deployed in networks for long periods of time. Our
software programs may contain undetected defects when first introduced or as
new versions are released, and our customers may discover defects in our
products or experience corruption of their data only after our software
programs have been deployed. As a consequence, from time to time we have
received customer complaints following installation of our products. In
addition, our products are combined with products from other vendors. As

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a
result, should problems occur, it may be difficult to identify the source of
the problem. These conditions increase the risk that we could experience, among
other things:



| |  | loss of customers;                                            
|- |  | --------------------------------------------------------------
| 
| |  | damage to our brand reputation;                               
| 
| |  | failure to attract new customers or achieve market acceptance;
| 
| |  | diversion of development resources; and                       
| 
| |  | legal actions by our customers.                               

In addition, we may not be able to avoid or limit liability for disputes
relating to product performance or the provision of services. The occurrence of
any one or more of the foregoing factors could cause us to experience losses,
incur liabilities and adversely affect our operating results.

We may not be able to develop our international operations successfully.

Currently, we have a limited international presence on which to base
expectations for international sales. Additionally, we must adapt our products
to meet the requirements of local markets, primarily in Asia. We may not be
successful in developing business outside of the United States despite
continued investment in our international operations. Factors that could have
an adverse effect on our ability to develop our international operations
include:



| |  | lack of experience in a particular geographic market;                                                      
|- |  | -----------------------------------------------------------------------------------------------------------
| 
| |  | significant presence of our competitors in international markets;                                          
| 
| |  | increased cost and development time required to modify and translate our products for local markets;       
| 
| |  | inability to recruit personnel in a specific country or region;                                            
| 
| |  | failure to enter into relationships with local resellers, systems integrators or other third-party vendors;
| 
| |  | differing foreign technical standards; and                                                                 
| 
| |  | regulatory, social, political, labor or economic conditions in a specific country or region.               

If our international operations expand, our business may become subject to
unexpected, uncontrollable and rapidly changing events and circumstances in
addition to those experienced in the United States. The following factors,
among others, could have an adverse impact on our business and operating
results:



| |  | operating costs in many countries are higher than in the United States;                                                                                                                            
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | conducting business in currencies other than United States dollars
subjects us to currency controls and fluctuations in currency exchange
rates;                                                   
| 
| |  | we may be unable to hedge some transactions because of uncertainty or
the inability to reasonably estimate our foreign exchange exposure;                                                          
| 
| |  | we may hedge some anticipated transactions and transaction exposures,
but could still experience losses due to exchange rate fluctuations;                                                         
| 
| |  | laws, policies and other regulatory requirements affecting trade and
investment including loss or modification of exemptions for taxes and
tariffs, and import and export license requirements; and
| 
| |  | exposure to different legal standards or risks.                                                                                                                                                    

We may be unable to identify or complete suitable acquisitions and investments,
and any acquisitions and investments we do complete may create business
difficulties or dilute our stockholders.

As part of our business strategy, we intend to pursue strategic
acquisitions. We may be unable to identify suitable acquisitions or investment
candidates. Even if we identify suitable candidates, we cannot assure you that
we will be able to make acquisitions or investments on commercially acceptable
terms. If we acquire a company, we

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may have difficulty integrating its
personnel and operations into our operations. In addition, its key personnel
may decide not to work for us. We may also have difficulty integrating acquired
businesses, products, services and technologies into our operations. These
difficulties could disrupt our ongoing business, distract our management and
workforce, increase our expenses and adversely affect our operating results. We
may also incorrectly judge the value or worth of an acquired company or
business. Furthermore, we may incur significant debt or be required to issue
equity securities to pay for future acquisitions or investments. The
issuance of equity securities may be dilutive to our stockholders.

Services provided by systems integrators carry lower gross margins than
services provided by our employees and a change in the mix of services revenues
could have an adverse impact on our operating results.

We subcontract certain consulting services to systems integrators which
generally causes such services to carry lower gross margins than services
provided internally. Therefore, an increase in the percentage of services
provided by systems integrators versus services provided by our employees could
have a detrimental impact on our overall gross margins and could adversely
affect operating results.

We may be unable to compete effectively in the application service provider
market.

Some businesses choose to access enterprise software applications through
application service providers, or ASPs, which are businesses that host
applications and provide access to software on a subscription basis. We have
limited experience selling our solutions through ASPs and may not be successful
in generating revenue from this distribution channel. Moreover, the use of ASPs
as a distribution channel may occur more rapidly than we anticipate, and we may
not be able to compete effectively in this environment.

In the event our products infringe on the intellectual property rights of third
parties, our business may suffer if we are sued for infringement or cannot
obtain licenses to these rights on commercially acceptable terms.

We are subject to the risk of adverse claims and litigation alleging
infringement by us of the intellectual property rights of others. Many
participants in the technology industry have an increasing number of patents
and patent applications and have frequently demonstrated a readiness to take
legal action based on allegations of patent and other intellectual property
infringement. Further, as the number and functionality of our products
increase, we believe that we may become increasingly subject to the risk of
infringement claims. If infringement claims are brought against us, these
assertions could distract management and we may have to expend potentially
significant funds and resources to defend or settle such claims. If we were
found to infringe on the intellectual property rights of others, we could be
forced to pay significant license fees or damages for infringement.

As part of our standard license agreements, we agree to indemnify our
customers for some types of infringement claims under the laws of the United
States and some foreign jurisdictions that may arise from the use of our
products. If a claim against us were successful, we may be required to incur
significant expense and pay substantial damages as we are unable to insure
against this risk. Even if we were to prevail, the accompanying publicity could
adversely impact the demand for our software. Provisions attempting to limit
our liability in our standard agreements may be invalidated by unfavorable
judicial decisions or by federal, state, local or foreign laws or ordinances.

If we are unable to attract and retain qualified personnel, specifically sales
and marketing personnel and software engineers, we will be unable to develop
new products and increase our revenue.

If we are unable to attract, train and retain highly-skilled technical,
managerial, sales and marketing personnel, we may be at a competitive
disadvantage and unable to increase our revenue. Competition for personnel in
the software industry is intense, and, at times, we have had difficulty
locating qualified candidates within desired geographic locations, or with
certain industry-specific domain expertise. We may grant large numbers of
options or other stock-based awards to attract and retain personnel, which
could be highly dilutive to our stockholders. The failure to attract, train,
retain and effectively manage employees could negatively impact our development
and sales efforts and cause a degradation of our customer service. In
particular, the loss of sales personnel could lead to lost sales opportunities
because it can take several months to hire and train replacement sales
personnel. Uncertainty created by turnover of key employees could adversely
affect our business, operating results and stock price.

We have limited protection of our intellectual property and, if we fail to
adequately protect our intellectual property, we may not be able to compete.

We consider certain aspects of our internal operations, software and
documentation to be proprietary, and rely on a combination of contract,
copyright, trademark and trade secret laws and other measures to protect this
information. In addition, to date we have filed only one patent application but
we intend to file additional patent applications. Outstanding applications may
not result in issued patents and, even if issued, the patents may not provide
any competitive advantage. Existing copyright laws afford only limited
protection. Our competitors may independently develop technologies that are
less expensive or better than our technology. In addition, when we license our
products to customers, we provide source code for most of our products. We also
permit customers to

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possibly obtain access to our other source code through a
source code escrow arrangement. This access to our source code may increase the
likelihood of misappropriation or other misuse of our intellectual property. In
addition, the laws of some countries in which our software products are or may
be licensed do not protect our software products and intellectual property
rights to the same extent as the laws of the United States. Defending our
rights could be costly.

Financial outlook

From time to time in press releases and otherwise, we may publish
forecasts or other forward-looking statements regarding our future results,
including estimated revenues or net earnings. Any forecast of our future
performance reflects various assumptions. These assumptions are subject to
significant uncertainties, and as a matter of course, any number of them may
prove to be incorrect. Further, the achievement of any forecast depends on
numerous risks and other factors (including those described in this
discussion), many of which are beyond our control. As a result, we cannot
assure that our performance will be consistent with any management forecasts or
that the variation from such forecasts will not be material and adverse.
Current and potential shareholders are cautioned not to base their entire
analysis of our business and prospects upon isolated predictions, but instead
are encouraged to utilize our entire publicly available mix of historical and
forward-looking information, as well as other available information affecting
us and our services, when evaluating our prospective results of operations.




ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Currently, we have minimal monetary assets, liabilities and operating
expenses denominated in foreign currencies. If our international operations
expand and we decide to enter into hedging transactions to minimize foreign
currency rate risk, the adoption of SFAS No. 133, as amended by SFAS Nos. 137
and 138, could have a material impact on our operating results.

We do not utilize any derivative security instruments. Investments with
original maturities of three months or less are classified as cash and cash
equivalents. As of November 30, 2001, we consider the reported amounts of
these investments to be reasonable approximations of their values. Therefore,
changes in the market interest rates will not have a material impact on our
financial position. Through November 30, 2001, interest expense was not
sensitive to the general levels of United States interest rates because all of
our notes payable bear fixed interest rates.







PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are a defendant in a lawsuit, Felice Cambridge v. Lawson Software, Inc.
et. al.,filed in the United States District Court for the Northern District
of Texas. The lawsuit primarily alleges violations of the Americans with
Disabilities Act of 1990 and related claims with respect to one former
employee. We believe these claims are without merit and we will vigorously
defend against these claims.




ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

(c)  Between September 2001 and November 2001: (i) we sold 379,762 shares of
common stock to various employees pursuant to the exercise of outstanding stock
options for an aggregate consideration of $338,871 in reliance upon Rule 701 of
the Securities Act of 1933, as amended (Securities Act) and (ii) we granted
options to purchase an aggregate of 45,000 shares of common stock to various
employees in reliance upon Rule 701 of the Securities Act.

(d)  Use of Proceeds

On December 12, 2001, we completed the initial public offering of our
common stock. The managing underwriters in the offering were Lehman Brothers,
JPMorgan, U.S. Bancorp Piper Jaffray and Fidelity Capital Markets. The shares
of common stock sold in the offering were registered under the Securities Act
of 1933, as amended, on a Registration Statement on Form S-1 (No. 333-63394).
The Securities and Exchange Commission declared the Registration Statement
effective on December 6, 2001. The offering commenced on December 7, 2001 and
terminated on December 12, 2001 after we sold all of the 15,336,153 shares of
common stock and the selling stockholders sold all of the 763,847 shares of
common stock registered under the Registration Statement (including the
2,100,000 shares sold in connection with the exercise of the underwriters
over-allotment option). The initial public offering price was $14.00 per share
for an aggregate initial public offering of $225.4 million.

We paid $14.0 million and the selling stockholders paid $695,101 in
underwriting discounts and Commissions. We paid approximately $2.9 million for
costs and expenses related to the offering. None of the costs and expenses
related to the offering were paid directly or indirectly to any of our
directors, officers, general partners or their associates, to persons owning 10
percent or more of any class of our equity securities or to any of our
affiliates.

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After deducting the underwriting discounts and commissions and other
offering expenses the estimated net proceeds to us from the offering were
approximately $198.0 million. A portion of the proceeds was used to repay
$10.2 million of our senior subordinated convertible notes due February 23,
2006 that bear interest at an annual rate of 12%. The proceeds from the
issuance of these notes were used for general corporate purposes. We expect to
use the remainder of the proceeds from the sale of shares by us in the initial
public offering for general corporate purposes, including increased marketing
and research and development expenditures, capital expenditures and possible
acquisitions. Pending use of those proceeds, we have invested the proceeds in
interest-bearing, investment grade securities.




ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None




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

None




ITEM 5. OTHER INFORMATION

None




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

None

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SIGNATURES

Pursuant to the requirements 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.

|                       |  |                       |  |                                                                                                                                           
|---------------------- |  | --------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|Date: January 16, 2002 |  | LAWSON SOFTWARE, INC.
|                      
|                       |  | By:                   |  | /s/ Robert G. BarbieriRobert G. Barbieri
Executive Vice President
and Chief Financial Officer
(principal financial and accounting
officer)

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EXHIBIT INDEX

|        |  |                          |  |  |  | 
|------- |  | ------------------------ |  |  |  | 
|EXHIBIT |  |                          |  |  |  | 
|NUMBER  |  | DESCRIPTION OF DOCUMENTS | 
|        |  |                          | 
|        |  | None.                   

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