**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 
| **ý**                                              | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                                                                       |
|---------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                              |
| **FOR THE QUARTERLY PERIOD ENDED August 31, 2005** |
| ** **                                              |
| **or**                                                  |
|                                                    |
| **o**                                                   | **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 000-33335**                    |

 

**LAWSON SOFTWARE, INC.**

(Exact name ofregistrant as specified in its charter)

 
| **DELAWARE**                                                                                 | ** ** | **41-1251159**                            |
|----------------------------------------------------------------------------------------------|------------|-------------------------------------------|
| (State  or other jurisdiction of  incorporation or organization)                             | ** ** | (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 bycheck mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. YES ý NOo

 

Indicate bycheck mark whether the registrant is an accelerated filer (as defined inRule 12b-2 of the Exchange Act). YES ý NOo

 

The number ofshares of the registrant’s common stock outstanding as of October 6, 2005 was 113,502,390.

 

 

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**LAWSON SOFTWARE, INC.**

 

**Form 10-QIndex**

 
| **PART I.** | **FINANCIAL INFORMATION**                                                                                  | **3**  |
|-------------|------------------------------------------------------------------------------------------------------------|--------|
| Item 1.     | Financial Statements (unaudited)                                                                           | 3      |
|        | Condensed Consolidated Balance  Sheets at August 31, 2005 and May 31, 2005                            | 3      |
|        | Condensed  Consolidated Statements of Operations  for the three months ended August 31, 2005 and 2004 | 4      |
|        | Condensed  Consolidated Statements of Cash Flows  for the three months ended August 31, 2005 and 2004 | 5      |
|        | Notes to Condensed Consolidated Financial  Statements                                                      | 6      |
| Item 2.     | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                | 16     |
| Item 3.     | Qualitative and Quantitative Disclosures  about Market Risk                                                | 46     |
| Item 4.     | Controls and Procedures                                                                                    | 46     |
|        |                                                                                                       |   |
| PART II.    | OTHER INFORMATION                                                                                          | 46     |
| Item 1.     | Legal Proceedings                                                                                          | 46     |
| Item 2.     | Unregistered Sales of Equity Securities and  Use of Proceeds                                               | 46     |
| Item 3.     | Defaults Upon Senior Securities                                                                            | 47     |
| Item 4.     | Submission of Matters to a Vote of Security  Holders                                                       | 47     |
| Item 5.     | Other Information                                                                                          | 47     |
| Item 6.     | Exhibits                                                                                                   | 47     |
|        | SIGNATURES                                                                                                 | 48     |

 

2

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PART I.  FINANCIAL INFORMATION

** **

**ITEM 1. FINANCIAL STATEMENTS**

** **

**LAWSON SOFTWARE, INC.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(in thousands)**

**(unaudited)**

 
| ** **                                                                                                                                                                                                        | ** ** | **August 31,  2005** | ** ** | **May 31,  2005** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------|------------|-------------------|------------|
| ASSETS                                                                                                                                                                                                            |       |                      |       |              |       |
| Current assets:                                                                                                                                                                                                   |       |                      |       |              |       |
| Cash and cash equivalents                                                                                                                                                                                         |       | $                         | 214,793    |              | $          | 187,744 |   |
| Marketable securities                                                                                                                                                                                             |       | 33,117                    |       | 43,099            |       |
| Trade accounts receivable, net                                                                                                                                                                                    |       | 44,518                    |       | 42,907            |       |
| Deferred income taxes                                                                                                                                                                                             |       | 9,314                     |       | 9,314             |       |
| Prepaid expenses and other assets                                                                                                                                                                                 |       | 11,416                    |       | 19,260            |       |
| Total current assets                                                                                                                        |       | 313,158                   |       | 302,324           |       |
|                                                                                                                                                                                                              |       |                      |       |              |       |
| Long-term marketable securities                                                                                                                                                                                   |       | 3,765                     |       | 3,770             |       |
| Property and equipment, net                                                                                                                                                                                       |       | 12,457                    |       | 13,574            |       |
| Goodwill                                                                                                                                                                                                          |       | 43,387                    |       | 43,407            |       |
| Other intangible assets, net                                                                                                                                                                                      |       | 29,744                    |       | 31,939            |       |
| Deferred income taxes                                                                                                                                                                                             |       | 21,320                    |       | 21,385            |       |
| Other assets                                                                                                                                                                                                      |       | 4,801                     |       | 4,319             |       |
| Total assets                                                                                                                                                                                                      |       | $                         | 428,632    |              | $          | 420,718 |   |
|                                                                                                                                                                                                              |       |                      |       |              |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                                         |       |                      |       |              |       |
| Current liabilities:                                                                                                                                                                                              |       |                      |       |              |       |
| Current portion of long-term debt                                                                                                                                                                                 |       | $                         | 871        |              | $          | 1,836 |   |
| Accounts payable                                                                                                                                                                                                  |       | 10,061                    |       | 12,003            |       |
| Accrued compensation and benefits                                                                                                                                                                                 |       | 17,229                    |       | 17,656            |       |
| Other accrued liabilities                                                                                                                                                                                         |       | 13,593                    |       | 15,848            |       |
| Deferred revenue                                                                                                                                                                                                  |       | 75,667                    |       | 76,571            |       |
| Total current liabilities                                                                                                                                                                                         |       | 117,421                   |       | 123,914           |       |
| Other long-term liabilities                                                                                                                                                                                       |       | 4,444                     |       | 3,749             |       |
| Total liabilities                                                                                                                                                                                                 |       | 121,865                   |       | 127,663           |       |
| Commitments and contingencies (Note 9)                                                                                                                                                                            |       |                      |       |              |       |
| Stockholders’ equity:                                                                                                                                                                                        |       |                      |       |              |       |
| Preferred stock; $0.01 par value; 42,562  shares authorized; no shares issued or outstanding                                                                                                                      |       | —                    |       | —            |       |
| Common stock; $0.01 par value; 750,000  shares authorized; 113,069 and 112,414 shares issued, respectively; 101,860  and 100,619 shares outstanding, at August 31, 2005 and May 31,  2005, respectively |       | 1,131                     |       | 1,124             |       |
| Additional paid-in capital                                                                                                                                                                                        |       | 347,162                   |       | 338,666           |       |
| Treasury stock, at cost; 11,209 and 11,795  shares at August 31, 2005 and May 31, 2005, respectively.                        |       | (70,988                   | )          | (72,348           | )          |
| Deferred stock-based compensation                                                                                                                                                                                 |       | (434                      | )          | (41               | )          |
| Retained earnings                                                                                                                                                                                                 |       | 26,910                    |       | 22,733            |       |
| Accumulated other comprehensive income                                                                                                                                                                            |       | 2,986                     |       | 2,921             |       |
| Total stockholders’ equity                                                                                                                                                                                   |       | 306,767                   |       | 293,055           |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                   |       | $                         | 428,632    |              | $          | 420,718 |   |

 

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

 

3

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**LAWSONSOFTWARE, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

**(in thousands, except per share data)**

**(unaudited)**

 
| ** **                                                                                                | ** ** | **Three Months Ended**    | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|---------------------------|------------|
| ** **                                                                                                | ** ** | **August 31,  2005** | ** ** | **August 31,  2004** | ** ** |
| Revenues:                                                                                                 |       |                      |       |   |   |
| License fees                                                                                              |       | $                         | 18,604     |   | $ | 13,251 |   |
| Services                                                                                                  |       | 69,310                    |       | 69,434 |   |
| Total revenues                                                                                            |       | 87,914                    |       | 82,685 |   |
| Cost of revenues:                                                                                         |       |                      |       |   |   |
| Cost of license fees                                                                                      |       | 2,421                     |       | 2,375 |   |
| Cost of services                                                                                          |       | 32,720                    |       | 36,456 |   |
| Total cost of revenues                                                                                    |       | 35,141                    |       | 38,831 |   |
|                                                                                                      |       |                      |       |   |   |
| Gross profit                                                                                              |       | 52,773                    |       | 43,854 |   |
|                                                                                                      |       |                      |       |   |   |
| Operating expenses:                                                                                       |       |                      |       |   |   |
| Research and development                                                                                  |       | 14,500                    |       | 15,647 |   |
| Sales and marketing                                                                                       |       | 18,972                    |       | 20,957 |   |
| General and administrative                                                                                |       | 16,872                    |       | 8,250 |   |
| Restructuring (Note 7)                                                                                    |       | 10                        |       | (75 | ) |
| Amortization of acquired intangibles                                                                      |       | 374                       |       | 385 |   |
| Total operating expenses                                                                                  |       | 50,728                    |       | 45,164 |   |
|                                                                                                      |       |                      |       |   |   |
| Operating income (loss)                                                                                   |       | 2,045                     |       | (1,310 | ) |
|                                                                                                      |       |                      |       |   |   |
| Other income:                                                                                             |       |                      |       |   |   |
| Interest income                |       | 2,305                     |       | 657 |   |
| Interest expense                                                                                          |       | (6                        | )          | (13 | ) |
| Total other income                                                                                        |       | 2,299                     |       | 644 |   |
|                                                                                                      |       |                      |       |   |   |
| Income (loss) before income taxes                                                                         |       | 4,344                     |       | (666 | ) |
| Provision (benefit) for income taxes                                                                      |       | 167                       |       | (249 | ) |
| Net income  (loss)                                                                                        |       | $                         | 4,177      |   | $ | (417 | ) |
|                                                                                                      |       |                      |       |   |   |
| Net income (loss) per share:                                                                              |       |                      |       |   |   |
| Basic                                                                                                     |       | $                         | 0.04       |   | $ | 0.00 |   |
| Diluted                                                                                                   |       | $                         | 0.04       |   | $ | 0.00 |   |
| Shares used in computing net income (loss)  per share:                                                    |       |                      |       |   |   |
| Basic                                                                                                     |       | 101,151                   |       | 98,294 |   |
| Diluted                                                                                                   |       | 105,463                   |       | 98,294 |   |

 

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

 

4

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**LAWSON SOFTWARE, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS**

**(in thousands)**

**(unaudited)**

 
| ** **                                                                                          | ** ** | **Three Months Ended**    | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|---------------------------|------------|
| ** **                                                                                          | ** ** | **August 31,  2005** | ** ** | **August 31,  2004** | ** ** |
| **Cash flows from operating activities:**                                                           |       |                      |       |   |   |
| Net income (loss)                                                                                   |       | $                         | 4,177      |   | $ | (417 | ) |
| Adjustments to reconcile net income (loss)  to net cash provided by (used in) operating activities: |       |                      |       |   |   |
| Depreciation and amortization                                                                       |       | 3,726                     |       | 4,232 |   |
| Deferred income taxes                                                                               |       | 65                        |       | 161 |   |
| Provision for doubtful accounts                                                                     |       | (733                      | )          | 625 |   |
| Tax benefit from stockholder transactions  for option activity                                      |       | 173                       |       | 1,067 |   |
| Tax commitment from exercise of stock  options                                                      |       | (719                      | )          | (651 | ) |
| Amortization of stock-based compensation                                                            |       | 132                       |       | 22 |   |
| Stock-based compensation                                                                            |       | 6,368                     |       | — |   |
| Amortization of discounts on notes payable                                                          |       | 13                        |       | 22 |   |
| Amortization of discount on marketable  securities                                                  |       | 21                        |       | 58 |   |
| Restructuring                                                                                       |       | 10                        |       | (75 | ) |
| Changes in operating assets and  liabilities, net of effect from acquisitions:                      |       |                      |       |   |   |
| Trade accounts receivable                                                                           |       | (878                      | )          | 8,691 |   |
| Prepaid expenses and other assets                                                                   |       | 8,449                     |       | (164 | ) |
| Accounts payable                                                                                    |       | (1,942                    | )          | (3,555 | ) |
| Accrued and other liabilities                                                                  |       | (1,850                    | )          | (8,587 | ) |
| Income taxes payable                                                                                |       | 30                        |       | (988 | ) |
| Deferred revenue and customer deposits                                                              |       | (989                      | )          | (18,385 | ) |
| Net cash provided by (used in) operating  activities                                           |       | 16,053                    |       | (17,944 | ) |
|                                                                                                |       |                      |       |   |   |
| **Cash flows from investing activities:**                                                           |       |                      |       |   |   |
| Cash paid in conjunction with pending  acquisition (Note 5)                                         |       | (1,087                    | )          | — |   |
| Purchases of marketable securities                                                                  |       | (11,932                   | )          | (214,540 | ) |
| Sales and maturities of marketable  securities                                                      |       | 21,889                    |       | 208,523 |   |
| Purchases of property and equipment                                                                 |       | (423                      | )          | (833 | ) |
| Net cash provided by (used in) investing  activities                                                |       | 8,447                     |       | (6,850 | )  |
|                                                                                                |       |                      |       |   |   |
| **Cash flows from financing activities:**                                                           |       |                      |       |   |   |
| Principal payments on long term debt                                                                |       | (967                      | )          | (105 | ) |
| Exercise of stock options                                                                           |       | 2,019                     |       | 2,025 |   |
| Issuance of treasury shares for employee  stock purchase plan                                       |       | 1,497                     |       | 2,368 |   |
| Repurchase of common stock                                                                          |       | —                    |       | (10,000 | ) |
| Net cash provided by (used in) financing  activities                                           |       | 2,549                     |       | (5,712 | ) |
| Increase (decrease) in cash and cash  equivalents                                                   |       | 27,049                    |       | (30,506 | )  |
| Cash and cash equivalents at beginning of  period                                                   |       | 187,744                   |       | 72,396 |   |
| Cash and cash equivalents at end of period                                                          |       | $                         | 214,793    |   | $ | 41,890 |   |

 

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

 

5

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**LAWSON SOFTWARE, INC.**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(unaudited)**

** **

**1.****            ****BASIS OF PRESENTATION**

 

The unauditedcondensed consolidated financial statements included herein reflect alladjustments, in the opinion of management, necessary to fairly state LawsonSoftware, Inc.’s (the Company’s) consolidated financial position, resultsof operations and cash flows for the periods presented. These adjustmentsconsist of normal, recurring items. The preparation of financial statements inconformity with generally accepted accounting principles in the United Statesrequires management to make estimates and assumptions that affect the reportedamounts therein. Due to the inherent uncertainty involved in making estimates,actual results in future periods may differ from those estimates. The resultsof operations for the three month period ended August 31, 2005, are notnecessarily indicative of the results to be expected for any subsequent quarteror for the entire fiscal year ending May 31, 2006. The unaudited condensedconsolidated financial statements and notes are presented as permitted by therequirements for Form 10-Q and do not contain certain information includedin the Company’s annual financial statements and notes. The year-end condensedbalance sheet data was derived from audited financial statements, but does notinclude all disclosures required by accounting principles generally accepted inthe United States.  The accompanyinginterim condensed consolidated financial statements should be read inconjunction with the financial statements and related notes included in theCompany’s Annual Report on Forms 10-K and Form 10-K/A filed with theSecurities and Exchange Commission for the fiscal year ended May 31, 2005.

 

***Reclassifications***

 

Duringfiscal 2005, the Company concluded that it was appropriate to classify itsDutch auction rate securities as marketable securities. Dutch auction ratesecurities are investments that are typically backed by preferred stock orlong-term, variable-rate debt instruments whose interest rates are reset atpredetermined short-term intervals through a Dutch auction process. Previously,such investments had primarily been classified as cash and cash equivalents.Accordingly, the Company has made corresponding reclassifications to theCondensed Consolidated Statement of Cash Flows for the three months endedAugust 31, 2004, to reflect the gross purchases and sales and maturities ofthese securities as investing activities rather than as a component of cash andcash equivalents. Purchases of marketable securities were originally reportedas $14,400 and were reclassified to $214,540. Sales and maturities ofmarketable securities were originally reported as $70,968 and were reclassifiedto $208,523.  Cash and cash equivalents —beginning of the period was originally reported as $79,996 and was reclassifiedto $72,396.  Cash and cash equivalents – endof the period was originally reported as $112,075 and was reclassified to$41,890.  These changes in classificationdo not affect the Company’s previously reported Condensed ConsolidatedStatements of Operations for any period.

 

**2.****            ****STOCK-BASED COMPENSATION**

 

The Company accounts forstock-based employee compensation arrangements in accordance with the provisionsof Accounting Principles Board (APB) Opinion No. 25, “Accounting for StockIssued to Employees,” and complies with the disclosure provisions of Statementof Financial Accounting Standard (SFAS) No. 123, “Accounting forStock-Based Compensation” and SFAS No. 148 “Accounting for Stock-BasedCompensation-Transition and Disclosure, an amendment of Financial AccountingStandards Board (FASB) Statement No. 123.”

 

The Company has adopted thedisclosure-only provisions of SFAS No. 123. For purposes of the pro formadisclosures below, the estimated fair value of the options is amortized toexpense over the options’ vesting period. Had compensation cost for the Company’sstock options been recognized based on the fair value at the grant dateconsistent with the provisions of SFAS No. 123, the Company’s net income (loss)would have been adjusted to the pro forma amounts indicated below (inthousands, except per share amounts):

 

6

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| ** **                   | ** **                                                                                                     | **Three Months  Ended  August 31,** | ** ** |
|------------------------------|----------------------------------------------------------------------------------------------------------------|------------------------------------------|------------|
| ** **                   | ** **                                                                                                     | **2005**                                 | ** ** | **2004** | ** ** |
| Net income (loss):           |                                                                                                           |                                     |       |   |   |
|                         | As reported                                                                                                    |                                     | $          | 4,177 |   | $ | (417 | )  |
| Add:                         | Stock-based employee compensation expense included in reported net income  (loss), net of taxes                |                                     | 3,979      |   | 14 |   |
| Deduct:                      | Total stock-based compensation expense determined under fair value  based method for all rewards, net of taxes |                                     | (2,235     | ) | (1,993 | ) |
| Pro forma net income (loss)  |                                                                                                           | $                                        | 5,921      |   | $ | (2,396 | )  |
| Net income (loss) per share: |                                                                                                           |                                     |       |   |   |
| Basic:                       |                                                                                                           |                                     |       |   |   |
| As reported                  |                                                                                                           | $                                        | 0.04       |   | $ | 0.00 |   |
| Pro forma                    |                                                                                                           | $                                        | 0.06       |   | $ | (0.02 | )  |
| Diluted:                     |                                                                                                           |                                     |       |   |   |
| As reported                  |                                                                                                           | $                                        | 0.04       |   | $ | 0.00 |   |
| Pro forma                    |                                                                                                           | $                                        | 0.06       |   | $ | (0.02 | ) |

 

During thethree months ended August 31, 2005, the Company recognized $4.0 million ofafter-tax stock-based employee compensation expense, that included a $3.8million non-cash charge resulting from a negotiated separation agreement withits former president and chief executive officer.  The agreement was deemed to be a modificationof previously granted options and therefore resulted in an intrinsic value chargefor option expense under APB No. 25.  Incalculating the pro forma net income (loss) under SFAS No.123, $2.2 million,net of related tax effects, was deducted from net income (loss) representingthe total stock-based employee compensation expense that was determined underfair value based method for all awards. The options for the former president and chief executive officer thatwere modified were 100% vested and therefore under the fair value based methodonly $0.4 million in option expense was included as expense in the pro formacalculation relating to the incremental value on the modified options ascompared to the options before modification.

 

Additionally,all out of the money options for all Section 16b officers and directors weremodified to permit a two year exercise window after termination.  While this required no charge in theCompany’s income statement under APB No. 25, there was an after-tax fair valuecharge included in the pro forma charge above of $0.3 million. The total ofboth modifications under SFAS No.123 was $0.7 million.

 

**3.****            ****PER SHARE DATA**

 

Basic earnings per share is computed usingthe net income (loss) and the weighted average number of shares of common stockoutstanding. Diluted earnings per share reflect the weighted average number ofshares of common stock outstanding plus any potentially dilutive sharesoutstanding during the period. Potentially dilutive shares consist of shares tobe issued upon the exercise of stock options and warrants and release ofrestricted stock (in thousands, except per share amounts).

 
| ** **                                    | ** ** | **Three Months Ended  August 31,** | ** ** |
|-----------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                    | ** ** | **2005**                                | ** ** | **2004** | ** ** |
| Basic earnings per share computation:         |       |                                    |       |   |   |
|                                          |       |                                    |       |   |   |
| Net income (loss)                             |       | $                                       | 4,177      |   | $ | (417 | ) |
| Weighted average common shares – basic   |       | 101,151                                 |       | 98,294 |   |
| Basic net income (loss) per share             |       | $                                       | 0.04       |   | $ | 0.00 |   |
|                                          |       |                                    |       |   |   |
| Diluted earnings per share computation:       |       |                                    |       |   |   |
|                                          |       |                                    |       |   |   |
| Net income (loss)                             |       | $                                       | 4,177      |   | $ | (417 | ) |
| Shares calculation:                           |       |                                    |       |   |   |
| Weighted average common shares                |       | 101,151                                 |       | 98,294 |   |
| Effect of dilutive stock options              |       | 4,127                                   |       | — |   |
| Effect of restricted stock                    |       | 99                                      |       | — |   |
| Effect of dilutive warrants                   |       | 86                                      |       | — |   |
| Weighted average common shares – diluted |       | 105,463                                 |       | 98,294 |   |
| Diluted net income (loss) per share           |       | $                                       | 0.04       |   | $ | 0.00 |   |

 

Potentially dilutive shares of common stockexcluded from the diluted net income (loss) per share computations were 7.3****million and 19.6 million as ofAugust 31, 2005 and 2004, respectively. Certain potentially dilutiveshares of common stock were excluded from the diluted earnings per sharecomputation because their exercise prices were greater than the average marketprice of the common shares during the period and were therefore not dilutive.In addition, potentially dilutive shares of common stock were excluded fromperiods with a net loss because they were anti-dilutive.

 

7

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**4.****            ****RECENT ACCOUNTING PRONOUNCEMENTS**

 

In December 2004, theFASB issued Statement of Financial Accounting Standard No. 123(revised 2004), *Share-Based Payment (“SFASNo. 123(R)”)*. SFAS No. 123(R) requires compensation costrelating to unvested share-based payment transactions that are outstanding asof the effective date and newly issued transactions to be recognized in thefinancial statements. That cost will be measured based on the fair value of theequity or liability instruments issued. SFAS No. 123(R) covers a widerange of share-based compensation arrangements including share options,restricted share plans, performance-based awards, share appreciation rights andemployee share purchase plans. SFAS No. 123(R) supersedes SFASNo. 123, *Accounting for Stock-BasedCompensation*(“SFASNo. 123”), and supersedes Accounting Principles Board OpinionNo. 25, *Accounting for Stock Issued toEmployees*(“Opinion 25”)*.*SFAS No. 123, as originallyissued in 1995, established a fair-value-based method of accounting forshare-based payment transactions with employees. However, SFAS No. 123permitted entities the option of continuing to apply the guidance in Opinion25, as long as the footnotes to financial statements disclosed what net incomewould have been had the fair-value-based method been used. The Company electedthe option of disclosure only under SFAS No. 123. In its disclosures, theCompany has historically used the Black-Scholes option pricing model todetermine the fair value of its share based compensation arrangements. Upon theadoption of SFAS No. 123(R), the Company will determine whether it willcontinue to utilize the Black-Scholes model or adopt some other acceptablemodel. Public entities will be required to apply SFAS No. 123(R) as of thefirst annual reporting period that begins after June 15, 2005, whichis effective with the Company’s first quarter of fiscal 2007. Based on theCompany’s significant amount of unvested share-based payment awards, theadoption of this statement is anticipated to have a material impact on theCompany’s Consolidated Statements of Operations, however the Company iscurrently evaluating the impact.

 

InDecember 2004, the FASB issued SFAS No. 153, “Exchanges ofNonmonetary Assets - An Amendment of APB Opinion No. 29” (“SFAS 153”). Theamendments made by SFAS 153 are based on the principle that exchanges ofnonmonetary assets should be measured based on the fair value of the assetsexchanged. Further, the amendments eliminate the narrow exception fornonmonetary exchanges of similar productive assets and replace it with abroader exception for exchanges of nonmonetary assets that do not have “commercialsubstance.” The provisions in SFAS 153 are effective for nonmonetary assetexchanges occurring in fiscal periods beginning after June 15, 2005,which is effective with the Company’s second quarter of fiscal 2006.Adoption of this standard is not expected to have a material impact on theCompany’s consolidated financial statements.

 

InMay 2005, the FASB issued SFAS No 154, “Accounting Changes and ErrorCorrections – A replacement of APB Opinion No. 20 and FASB StatementNo. 30” (“SFAS 154”).  SFAS 154changes the requirement for the accounting for and reporting of a change inaccounting principle. This statement applies to all voluntary changes inaccounting principles and changes required by an accounting pronouncement inthe unusual instance that the pronouncement does not include specifictransition provisions.  The provisions inSFAS 154 are effective for accounting changes and correction of errors made infiscal years beginning after December 15, 2005, which is effectivewith the Company’s first quarter of fiscal 2007.  The Company intends to adopt the disclosurerequirements upon the effective date of the pronouncement.  Since this pronouncement only relates todisclosure requirements, the adoption will have no impact on the Company’sconsolidated financial statements.

 

**5.****             PENDINGBUSINESS COMBINATION**

 

OnJune 2, 2005, the Company entered into an agreement to combine withStockholm, Sweden-based Intentia International AB (“Intentia”) in an all-stocktransaction. The Company and Intentia will effect their business combinationthrough a recommended public offer in Sweden (the “Offer”) for (i) alloutstanding Intentia Series A and Series B shares and (ii) alloutstanding warrants to purchase Series B shares, in exchange for sharesof the Company common stock. Under the Offer, the Company would issue

 

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approximately81 million shares of its common stock, with an aggregate transaction valueof approximately USD 463.7 million, based on the average closing price ofthe Company’s common stock beginning two days before and ending two days afterthe June 2, 2005 announcement date.  Thetransaction value has been adjusted from the previously reported $480 milliondue to a revision to the Company’s stock price used to value thetransaction.  The revision, however, doesnot have any impact on the exchange ratios of the Exchange Offer between Lawsonand Intentia. The Offer is expected to result in the Company’s stockholdersowning approximately 56.75 percent, and Intentia’s stockholders owningapproximately 43.25 percent, based on the Company’s capital stock andSeries A and Series B Intentia capital stock, calculated on afully-diluted basis using the treasury method. Completion of the transaction isdependent upon, among other factors, completion of regulatory review,stockholder approval and sufficient tender of Intentia shares.  Subject to those factors, the Companyanticipates that the transaction will be completed in the third quarter offiscal 2006.

 

The transaction is expected to qualify as a tax-free exchange for bothparties within the meaning of Section 351 of the United States InternalRevenue Code. The Company intends to account for the transaction under thepurchase method of accounting and accordingly, the assets and liabilitiesacquired will be recorded at their estimated fair values at the effective dateof the acquisition and the results of the operations will be included in theConsolidated Statements of Operations effective with the acquisition date.  The Company has incurred approximately $6.9 millionof costs related to the acquisition, of which $4.7 million has beencapitalized as directly related to the transaction and eligible for inclusionas part of the purchase price. During the three months ended August 31, 2005,$1.3 million of costs related to the acquisition were charged to operations.

 

**6.****            ****COMPREHENSIVE INCOME (LOSS)**

 

The followingtable summarizes the components of comprehensive income (loss) (in thousands):

 
| ** **                                                                                                                                       | ** ** | **Three Months Ended  August 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                                                                                       | ** ** | **2005**                                | ** ** | **2004** | ** ** |
| Net income  (loss)                                                                                                                               |       | $                                       | 4,177      |   | $ | (417 | ) |
| Unrealized (loss) gain on  available-for-sale investments, net of (benefit) taxes of $(3) and $17 as of  August 31, 2005 and 2004, respectively. |       | (5                                      | )          | 26 |   |
| Net foreign currency translation adjustment                                                                                                      |       | 70                                      |       | (148 | ) |
| Other comprehensive income (loss)                                                                                                                |       | 65                                      |       | (122 | ) |
| Comprehensive  income (loss)                                                                                                                     |       | $                                       | 4,242      |   | $ | (539 | ) |

 

**7.****            ****RESTRUCTURING**

 

Duringthe three months ended August 31, 2005 and 2004, the Company recordedrestructuring adjustments resulting in an additional charge of $0.01 millionand a reversal of $0.08 million, respectively.

 

***Fiscal 2005 Restructuring***

 

OnSeptember 28, 2004, the Company approved a plan designed to enhancethe Company’s operating effectiveness and profitability. Under therestructuring plan (Phase I), the Company streamlined structure, consolidatedleadership and reduced long-term costs to realign projected expenses withanticipated revenue levels. The plan included the reduction of 107 employees infiscal 2005 in the United States and the United Kingdom, which inaccordance with SFAS No. 112, *Employers Accounting forPost Employment Benefits - an amendment of FASB Statements No. 5 and 43(“*SFASNo. 112*”)*, resulted in a charge for severanceand related benefits of $2.9 million, net of a reversal of$0.03 million subsequent to the initial charge in the year endedMay 31, 2005. The reduction included employees who worked inoperations, marketing, sales, research and development, maintenance andservices. There were no cash payments during

 

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thethree months ended August 31, 2005. All employee reductions and related cashpayments were substantially completed as of August 31, 2005. Theremaining cash payments are expected to be completed during fiscal 2006.

 

The following table sets forth the restructuringreserve activity related to the Phase I restructuring plan and the remainingbalances as of August 31, 2005, which are included in accruedcompensation and benefits (in thousands):

 
| ** **                                                                                              | ** ** | **Severance  and related  benefits** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| Balance, May 31, 2005                                                                         |       | $                                    | 29         |   |
| Cash payments                |       | —                               |       |
| Balance, August 31, 2005                                                                      |       | $                                    | 29         |   |

 

AtNovember 30, 2004, the Company also accrued for a restructuring plan(Phase II) that included initiatives to further reduce costs and realignprojected expenses with anticipated revenue levels. It included a reduction of68 employees in the United States and the United Kingdom, and because theCompany was able to determine probability at the end of the second quarter offiscal 2005, the restructuring resulted in a charge of approximately$2.2 million, net of a reversal of $0.3 million subsequent to theinitial charge within fiscal 2005 for severance and related benefits, inaccordance with SFAS No. 112. The reduction included employees who workedin sales, research and development and services. Cash payments duringfiscal 2005 for the Phase II plan were $2.0 million. Cash payments of$0.01 million were made during the three months ended August 31, 2005. TheCompany adjusted the remaining accrual for costs that are no longer anticipatedto be incurred. All employeereductions and related cash payments were substantially completed as of August 31, 2005.The remaining cash payments are expected to be completed duringfiscal 2006.

 

The following table sets forth the restructuringreserve activity related to the Phase II restructuring plan and the remaining balancesas of August 31, 2005, which are included in accrued compensation andbenefits (in thousands):

 
| ** **                                                                                              | ** ** | **Severance  and related  benefits** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| Balance, May 31, 2005                                                                         |       | $                                    | 114        |   |
| Cash payments                |       | (14                                  | )          |
| Adjustments to provision                                                                                |       | (25                                  | )          |
| Balance August 31, 2005                                                                       |       | $                                    | 75         |   |

 

***Fiscal 2004 Restructuring***

 

In September 2003, the Company approved arestructuring plan to realign projected expenses with anticipated lower revenuelevels and incurred restructuring charges of $2.3 million for severenceand related benefits. The fiscal 2004 plan resulted in the reduction of 93employees in the second quarter of fiscal 2004, from various functionsincluding research and development, general and adminstrative and sales andmarketing, primarily in the United States. During the three months ended August31, 2004, the Company recorded a reversal of restructuring charges of $0.03million for certain employee costs it determined would not be incurred.

 

There were no cash payments made during the threemonths ended August 31, 2005; however, the Company adjusted the remainingaccrual to cover additional costs that are anticipated to be incurred. TheCompany expects the cash payments to be completed in fiscal 2006.

 

The following table sets forth the restructuringreserve activity related to the fiscal 2004 restructuring plan and theremaining balances as of August 31, 2005, which are included inaccrued compensation and benefits (in thousands):

 

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| ** **                      | ** ** | **Severance  and related  benefits** | ** ** |
|---------------------------------|------------|--------------------------------------|------------|
| Balance, May 31, 2005 |       | $                                    | 62         |   |
| Cash payments                   |       | —                               |       |
| Adjustments to provision        |       | 61                                   |       |
| Balance, August 31, 2005   |       | $                                    | 123        |   |

 

***Fiscal 2003 Restructuring***

 

In September 2002, the Company approved arestructuring plan to realign projected expenses with anticipated lower revenuelevels and incurred restructuring charges of $5.8 million, which included$4.7 million of severence and related benefits and $1.1 million forthe closure and consolidation of facilities. The plan resulted in the reductionof 244 employees in the second quarter of fiscal 2003, from variousfunctions including administrative, professional and managerial in the UnitedStates, Canada and Europe. During the three months ended August 31, 2004, theCompany recorded a reversal of restructuring charges of $0.05 million forcertain employee costs it determined would not be incurred. Duringfiscal 2005, the Company completed its obligations under the restructuringplan.

 

***Fiscal 2002 Restructuring***

 

In May 2002, theCompany approved a restructuring plan in response to the general economicdownturn and incurred restructuring charges of $3.3 million, whichincluded $3.0 million for severance related benefits and $0.3 millionfor the closure of a leased office facility. During fiscal 2003, theCompany recorded an additional provision of $0.2 million associated withfinalization of lease termination agreements. The plan resulted in thereduction of 111 employees in various functions including administrative,professional, and managerial, primarily in the United States. During the threemonths ended August 31, 2005, the Company made cash payments completing itsobligations under the restructuring plan, and adjusted the remaining accrualfor facility closure related costs.

 

The following table setsforth the restructuring reserve activity related to the fiscal 2002restructuring plan (in thousands):

 
| ** **                         | ** ** | **Facilities** | ** ** |
|------------------------------------|------------|----------------|------------|
| Balance, May 31, 2005    |       | $              | 30         |   |
| Cash payments                      |       | (5             | )          |
| Adjustments to provision           |       | (25            | )          |
| Balance, August 31, 2005 |       | $              | —     |   |

 

**8.****            ****GOODWILL AND INTANGIBLE ASSETS**

 

The changes, in the carrying amount ofgoodwill for the three months ended August 31, 2005, are as follows (inthousands):

 
| Balance as of May 31, 2005         |   | $   | 43,407 |   |
|------------------------------------|--------|-----|--------|--------|
| Currency translation effect        |   | (20 | )      |
| Balance as of August 31, 2005 |   | $   | 43,387 |   |

 

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Acquiredintangible assets subject to amortization were as follows (in thousands):

 
| ** **             | ** ** | **August 31, 2005**     | ** ** | **May 31, 2005**              | ** ** |
|------------------------|------------|------------------------------|------------|-------------------------------|------------|
| ** **             | ** ** | **Gross  Carrying  Amounts** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** | **Gross  Carrying  Amounts** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
| Maintenance contracts  |       | $                            | 22,940     |                          | $          | 5,317 |   | $ | 17,623 |   | $ | 22,940 |   | $ | 4,316 |   | $ | 18,624 |   |
| Acquired technology    |       | 14,227                       |       | 9,225                         |       | 5,002 |   | 14,234 |   | 8,417 |   | 5,817 |   |
| Customer lists         |       | 11,211                       |       | 4,200                         |       | 7,011 |   | 11,217 |   | 3,879 |   | 7,338 |   |
| Non-compete agreements |       | 527                          |       | 419                           |       | 108 |   | 628 |   | 468 |   | 160 |   |
|                   |       | $                            | 48,905     |                          | $          | 19,161 |   | $ | 29,744 |   | $ | 49,019 |   | $ | 17,080 |   | $ | 31,939 |   |

 

Intangibleassets are amortized on a straight-line basis over the estimated periodsbenefited, generally three to five years for acquired technology, four to tenyears for customer lists, and the term of the agreement for non-competeagreements. Intangible assets for maintenance contracts are amortized under anaccelerated amortization method, over the estimated term of the agreementsbased on the estimated revenue for the applicable period in relation to thetotal estimated revenue. For the three months ended August 31, 2005 and 2004, amortization expense for intangible assets was $2.2million.  Amortization expense isreported in cost of license fees, cost of services and amortization of acquiredintangibles, in the accompanying Condensed Consolidated Statements ofOperations.

 

The estimatedfuture amortization expense for identified intangible assets is as follows (inthousands):

 
| 2006 (remaining 9 months) |   | $     | 6,438  |   |
|---------------------------|--------|-------|--------|--------|
| 2007                      |   | 6,955 |   |
| 2008                      |   | 4,664 |   |
| 2009                      |   | 3,637 |   |
| 2010                      |   | 3,005 |   |
| Thereafter                |   | 5,045 |   |
|                      |   | $     | 29,744 |   |

 

**9.****            ****COMMITMENTS AND CONTINGENCIES**

 

The Company hasoutstanding contingent consideration agreements related to acquisitions rangingin the aggregate from zero to $6.9 million, measured over various periodsthrough fiscal 2007, based on the acquired company’s future performance.Contingent consideration earned is paid in cash and recorded as additionalgoodwill. During the three months ended August 31, 2005, no additionalconsideration had been earned under these agreements.

 

TheCompany is involved in various claims and legal actions in the normal course ofbusiness. Management is of the opinion that the outcome of such legal actionswill not have a significant adverse effect on the Company’s financial position,results of operations or cash flows. Notwithstanding management’s belief, anunfavorable resolution of some or all of these matters could materially affectthe Company’s future results of operations and cash flows.

 

On May 9, 2005, the Companyand International Business Machines Corporation (IBM) entered into an OEMSoftware Agreement and a Master Relationship Agreement (MRA).  Under these agreements, the Company will resellits business applications in conjunction with IBM’s open standards-basedsoftware, and

 

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the companies will jointlymarket these software solutions.  The MRAgoverns the joint marketing activities and has a three-year term.

 

At the Company’s request, onSeptember 13, 2005, the Company and IBM modified the OEM Software Agreementconcerning the calculation of royalties and timing of payments to IBM, and thetiming of inclusion of IBM programs in the solutions offered by the Company.  During the term of the modified OEM SoftwareAgreement, the Company will pay royalties to IBM for the licensing of IBMprograms to each applicable existing and new customer of the Company, and willalso pay IBM annual maintenance fees for each applicable customer.  The royalty and maintenance payments to IBMwill be based on transactions with each applicable Lawson customer instead ofbeing based on the Company’s revenue (which was the case in the initial OEMSoftware Agreement).  If the Companymerges with or acquires the capital stock or assets of another entity, Lawsonmay include that entity’s products under the OEM Software Agreement under termsto be negotiated between the Company and IBM. The modified OEM Software Agreement has an initial term of three yearscommencing September 2005 and may be extended by the Company for two additionalone-year terms.  During the initialthree-year term, the Company has agreed to pay certain minimum quarterly andannual royalties to IBM, commencing in December 2005.  The Company may elect to terminate the OEMSoftware Agreement for convenience upon 90 days advance notice to IBM.  If the Company elects early termination at anytime during the initial three-year term, the Company would pay IBM any unpaidminimum royalties through the date of termination plus a prorate share of theguaranteed payments due for the quarter and year in which the terminationoccurred.  Upon contract execution of themodified agreement, the Company is committed to pay $1.7 million by December 31,2005.  In addition, the amount theCompany owes in the initial year of the contract if we terminate would be aprorated portion of $0.6 million.

 

On May 9, 2005, theCompany and The Hackett Group, Inc., a wholly-owned subsidiary of Answerthink Inc. (“Hackett”), entered into anAdvisory Alliance Agreement (the “Agreement”). The Agreement identifies jointprograms in which Hackett will provide the Company and its customers andprospects with, among other things, access to Hackett benchmark tools,best-practices research and business advisory services in exchange for thepayment of specified program fees. The term of the Agreement commenced onMay 9, 2005, and continues until May 31, 2008, unlessterminated earlier in accordance with the provisions of the Agreement. TheCompany and Hackett have the option to extend the terms of the programs uponmutual written agreement, and Hackett has agreed to provide certain exclusivityrights to the Company in connection with certain of its programs. Under theAgreement, the Company paid $1.1 million in the three months ended August 31,2005, and is contractually committed to pay an additional $1.0 millionwithin the next twelve months that has been recorded as other accruedliabilities at August 31, 2005. In addition, the Company will pay additionalfees when sales volumes meet established criteria throughout the term of thecontract.

 

InFebruary 2004, the Company entered into an offshore agreement with athird-party to provide software maintenance services. If the Company terminatesthis agreement prior to its initial twenty-four month term, a termination feewill be incurred equal to the sum of the previous six months service charges,estimated to be $2.0 million. Management is of the opinion that the agreementwill not be terminated within the initial twenty-four month period.

 

**10.****         ****SEGMENT AND GEOGRAPHIC AREAS**

 

The Companyviews its operations and manages its business as one segment, the developmentand marketing of computer software and related services. Factors used toidentify the Company’s single operating segment include the financialinformation available for evaluation by the chief operating decision maker inmaking decisions about how to allocate resources and assess performance.  The Company markets its products and servicesthrough the Company’s offices in the United States and its wholly-ownedbranches and subsidiaries operating in Canada, the United Kingdom, France andthe Netherlands. The following table presents revenues and long-lived assetssummarized by geographic region (in thousands):

 

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| ** **               | ** ** | **Three Months Ended  August 31,** | ** ** |
|--------------------------|------------|-----------------------------------------|------------|
| ** **               | ** ** | **2005**                                | ** ** | **2004** | ** ** |
| Revenues:                |       |                                    |       |   |   |
| Domestic operations      |       | $                                       | 84,577     |   | $ | 77,971 |   |
| International operations |       | 3,337                                   |       | 4,714 |   |
| Consolidated             |       | $                                       | 87,914     |   | $ | 82,685 |   |
|                     |       |                                    |       |   |   |
| ** **               | ** ** | **August 31,  2005**               | ** ** | **May 31,  2005** | ** ** |
| Long-lived assets:       |       |                                    |       |   |   |
| Domestic operations      |       | $                                       | 71,070     |   | $ | 73,925 |   |
| International operations |       | 14,518                                  |       | 14,995 |   |
| Consolidated             |       | $                                       | 85,588     |   | $ | 88,920 |   |

 

The followingtable presents revenues for license fees, maintenance and consulting services(in thousands):

 
| ** **              | ** ** | **Three Months Ended  August 31,** | ** ** |
|-------------------------|------------|-----------------------------------------|------------|
| ** **              | ** ** | **2005**                                | ** ** | **2004** | ** ** |
| Components of revenues: |       |                                    |       |   |   |
| License fees            |       | $                                       | 18,604     |   | $ | 13,251 |   |
| Services:               |       |                                    |       |   |   |
| Maintenance             |       | 43,613                                  |       | 40,682 |   |
| Consulting              |       | 25,697                                  |       | 28,752 |   |
| Total services          |       | 69,310                                  |       | 69,434 |   |
| Total revenues          |       | $                                       | 87,914     |   | $ | 82,685 |   |

 

**11.****          COMMON STOCK REPURCHASES**

 

In June 2003,the Company’s Board of Directors authorized the repurchase of up to $50.0million of the Company’s common shares. Shares were repurchased from time totime as market conditions warranted either through open market transactions,block purchases, private transactions or other means. During the three monthsended August 31, 2004, the Company completed the authorized stock repurchaseplan by purchasing the remaining 1.4 million shares for $10.0 million in cash.Cash proceeds obtained from the maturities of marketable securities, theexercise of employee stock options and contributions to the employee stockpurchase plan, largely funded the share repurchases. The repurchased shares,which remain in treasury, will be used for general corporate purposes.

 

**12.****          STOCKWARRANT**

 

On July 18,2005, a stock warrant issued in fiscal 2001 with a five-year life, wasexercised allowing its holder to purchase 1.0 million shares of theCompany’s common stock at an exercise price of $4.64 per share. The warrant wasexercised on a net basis, resulting in the issuance of 0.1 million sharesof common stock from treasury, which resulted in a $0.3 million reductionto additional paid-in capital for the three months ended August 31, 2005.  As of August 31, 2005, there were no moreoutstanding stock warrants.

 

**13.****          STOCKCOMPENSATION**

 

**Amendmentsto Stock Option Agreements**

 

Effective on June 1, 2005, the Company amended the stockoptions held by each of its non-employee directors to: (1) fully vest andeliminate the Company’s call right to purchase shares issued after

 

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exercise and (2) allow those options to be exercised until theearlier of two years after resignation as a director or ten years after thedate of grant. This change resulted in recognizing $0.1 million incompensation expense included in general and administrative expenses in theCondensed Consolidated Statements of Operations for the three months endedAugust 31, 2005, because a portion of these options were “in-the-money” at thetime they were immediately vested.

 

Effective on June 1, 2005, the Company amended the stockoptions that have an exercise price per share greater than or equal to $5.95(the closing price on NASDAQ on June 1, 2005) and that are held byeach officer who was subject to the reporting requirements of Section 16of the Securities Exchange Act of 1934, to allow that officer to exercise theoptions that are unexercised and vested as of that officer’s employmenttermination date until the earlier of two years after termination of employmentor ten years after the date of grant. Stock options previously granted to any Section 16 reporting personwith an exercise price per share of less than $5.95 were not amended. This stock-basedcompensation change resulted in no impact to the Condensed ConsolidatedStatements of Operations for the three months ended August 31, 2005.

 

 **Restricted Stock Award**

 

On June 2, 2005, the Company granted a restricted stock award of100,000 shares of common stock to its newly appointed president and chiefexecutive officer. The shares, with a market value at date of grant of $0.5million, shall vest in two 50,000 share increments on June 1, 2006 and 2007,subject to acceleration upon certain events.  The market value of the restricted stock wasrecorded as unearned compensation, a component of shareholders’ equity, and isbeing amortized over the respective vesting periods.

 

**StockCompensation Charge**

 

For the three months ended August 31, 2005, the Company recorded a $6.3million non-cash charge resulting from a negotiated separation agreement withits former president and chief executive officer, which among other termsprovided that he remain available to the Company in a part-time employmentstatus for a period of up to two years.  That agreement was deemed to be a modificationof previously granted options, resulting in a non-cash charge for option expense. The charge is included in general andadministrative expenses in the Condensed Consolidated Statements of Operationsfor the three months ended August 31, 2005.

 

**14.****          INCOME TAXES**

 

Thequarterly tax expense is measured using an estimated annual tax rate for theperiod. At August 31, 2005, the Company’s estimated annual tax rate was 40.7%.The Company’s first quarter effective tax rate was 3.8% and 37.4% for the threemonths ended August 31, 2005 and August31, 2004, respectively. The decreased effective tax rate was primarilythe result of the Company releasing $1.6 million of tax reserves.  The Company is not expecting the need toincrease the valuation allowance for the fiscal year ended May 31, 2006.

 

The Company reviews itsannual tax rate on a quarterly basis and makes any necessary changes. Theestimated annual tax rate may fluctuate due to changes in forecasted annualoperating income; changes to the valuation allowance for net deferred taxassets; changes to actual or forecasted permanent book to tax differences;impacts from future tax settlements with state, federal or foreign taxauthorities; or impacts from enacted tax law changes.

 

The Company identifies itemswhich are unusual and non-recurring in nature, and treats these as discreteevents. The tax effect of discreet items is booked entirely in the quarter inwhich the discrete event occurs.

 

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**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**Forward-LookingStatements**

 

In addition tohistorical information, this Form 10-Q contains forward-lookingstatements. These forward-looking statements are made in reliance upon the safeharbor provisions of the Private Securities Litigation Reform Act of 1995.  The words “believe,” “expect,” “anticipate,” “intend,”“estimate,” “forecast,” “project,” “should” and similar expressions areintended to identify “forward-looking statements” within the meaning of thePrivate Securities Litigation Reform Act of 1995. Forward-looking statementsinclude, among others, statements about our future performance, thecontinuation of historical trends, the sufficiency of our sources of capitalfor future needs, the effects of acquisitions and the expected impact ofrecently issued accounting pronouncements. These forward-looking statements aresubject to certain risks and uncertainties that could cause actual results todiffer 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 andAnalysis of Financial Condition and Results of Operations—Factors That MayAffect Our Future Results or the Market Price of Our Stock.” Readers arecautioned not to place undue reliance on these forward-looking statements,which reflect management’s opinions only as of the date hereof. We undertake noobligation to revise or publicly release the results of any revision to theseforward-looking statements based on circumstances or events, which occur in thefuture. Readers should carefully review the risk factors described in thisreport on Form 10-Q and in other documents we file from time to time withthe Securities and Exchange Commission.

 

**Business Overview**

 

We providebusiness application software, services and support that help organizationsmanage, analyze and improve their businesses. The markets we serve includehealthcare, retail, financial services (including banking, insurance and otherfinancial services), local/state government, education and professionalservices. We derive revenues from licensing business application software andproviding comprehensive professional services, including consulting, trainingand implementation services, as well as ongoing customer support andmaintenance. Consulting, training and implementation services are generally notessential to the functionality of our software products, are sold separatelyand also are available from a number of third-party service providers.Accordingly, revenues from these services are generally recorded separatelyfrom license fees. We have offices and affiliates serving North and SouthAmerica, Europe, Asia, Africa, and Australia.

 

**PendingBusiness Combination**

 

On June 2, 2005, we announced that we had entered into anagreement to combine with Stockholm, Sweden-based Intentia International AB (“Intentia”)in an all-stock transaction. We plan to affect the business combination througha recommended public offer in Sweden for (i) all outstanding IntentiaSeries A and Series B shares and (ii) all outstanding warrantsto purchase Series B shares, in each case in exchange for shares of ourCommon Stock. The transaction is expected to be completed in the third quarterof fiscal 2006 subject to, among other things, shareholder, regulatory andpublic authority approvals and sufficient tender of shares by Intentiastockholders. The transaction is expected to be accounted for under thepurchase method of accounting. Refer to Note 5, “Pending Business Combination”in the Notes to the Condensed Consolidated Financial Statements for additionalinformation.

 

**Critical AccountingPolicies and Estimates**

 

Our discussionand analysis of financial condition and results of operations are based uponour unaudited condensed consolidated financial statements, which have beenprepared in accordance with accounting principles generally accepted in theUnited States. The preparation of these financial statements requires us tomake estimates and assumptions that affect the reported amounts of assets andliabilities at the date of the financial statements, the reported amounts ofrevenues and expenses during the reporting period, and related disclosures ofcontingent assets and liabilities. The Notes to the Condensed Consolidated 

 

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FinancialStatements contained herein describe our significant accounting polices used inthe preparation of the consolidated financial statements. On an on-going basis,we evaluate our estimates, including, but not limited to, those related to baddebt, intangible assets and contingencies. We base our estimates on historicalexperience and on various other assumptions that we believe to be reasonableunder the circumstances, the results of which form the basis for makingjudgments about the carrying values of assets and liabilities that are notreadily apparent from other sources. Actual results could differ from theseestimates.

 

We believe thecritical accounting polices listed below reflect our more significantjudgments, estimates and assumptions used in the preparation of our condensedconsolidated financial statements.

 

*RevenueRecognition.*    Revenue recognition rules for software businessesare very complex. We follow specific and detailed guidelines in determining theproper amount of revenue to be recorded; however, certain judgments affect theapplication of our revenue recognition policy. Revenue results are difficult topredict, and any shortfall in revenue or delay in recognizing revenue couldcause our operating results to vary significantly from quarter to quarter.

 

The significantjudgments for revenue recognition typically involve whether collectibility canbe considered probable and whether fees are fixed or determinable. In addition,our transactions often consist of multiple element arrangements, which must beanalyzed to determine the relative fair value of each element, the amount ofrevenue to be recognized upon shipment, if any, and the period and conditionsunder which deferred revenue should be recognized.

 

We recognizerevenues in accordance with the provisions of the American Institute ofCertified Public Accountants (AICPA) Statement of Position (SOP) 97-2, “SoftwareRevenue Recognition,” as amended and SOP 98-9, “Modification of SOP 97-2,Software Revenue Recognition, With Respect to Certain Transactions,” as well asTechnical Practice Aids issued from time to time by the AICPA, and inaccordance with the Securities and Exchange Commission Staff Accounting Bulletin(SAB) No. 104, “Revenue Recognition”. We license software undernon-cancelable license agreements and provide related professional services,including consulting, training, and implementation services, as well as ongoingcustomer support and maintenance. Consulting, training and implementationservices are generally not essential to the functionality of our softwareproducts, are sold separately and also are available from a number ofthird-party service providers. Accordingly, revenues from these services aregenerally recorded separately from license fees. Software arrangements whichinclude fixed-fee service components are recognized as the services areperformed while corresponding costs to provide these services are expensed asincurred. Software arrangements including services that are essential to thefunctionality of our software products are recognized using contract accountingand the percentage-of-completion methodology based on labor hours input. Theamount of judgment involved in addressing significant assumptions, risks anduncertainties in applying the application of the percentage-of-completionmethodology can impact the amounts of revenue and related expenses reported inthe consolidated financial statements. Our specific revenue recognitionpolicies are as follows:

 

•      SoftwareLicense Fees— License fee revenues fromend-users are recognized when the software product has been shipped, provided anon-cancelable license agreement has been signed, there are no uncertaintiessurrounding product acceptance, the fees are fixed or determinable andcollection of the related receivable is considered probable. Provided the abovecriteria are met, license fee revenues from resellers are recognized when thereis a sell-through by a reseller to an end-user. A sell-through is determinedwhen we receive an order form from a reseller for a specific end-user sale. Wedo not generally offer rights of return, acceptance clauses or price protectionto our customers. In situations where we do provide rights of return oracceptance clauses, revenue is deferred until the clause expires. Typically,our software license fees are due within a twelve-month period from the date ofshipment. If the fee due from the customer is not fixed or determinable,including payment terms greater than twelve months from shipment, revenue isrecognized as payments become due and all other conditions for revenuerecognition have been satisfied. In software arrangements that include rightsto multiple software products, specified upgrades, support or services, weallocate the total arrangement fee among each deliverable using the fair valueof each of the deliverables 

 

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determined usingvendor-specific objective evidence. Vendor-specific objective evidence of fairvalue is determined using the price charged when that element is soldseparately. In software arrangements in which we have fair value of allundelivered elements but not of a delivered element, we use the residual methodto record revenue.  Under the residualmethod, the fair value of the undelivered elements is deferred and theremaining portion of the arrangement fee is allocated to the deliveredelement(s) and is recognized as revenue.  In software arrangements in which we do not have vendor-specificobjective evidence of fair value of all undelivered elements, revenue isdeferred until fair value is determined or all elements for which we do nothave vendor-specific objective evidence of fair value, have been delivered.

 

•      Services—Revenues from training andconsulting services are recognized as services are provided to customers.Revenues from support contracts are deferred and recognized ratably over theterm of the support agreements. Revenues for customer support that are bundledwith the initial license fee are deferred based on the fair value of thebundled support services and recognized ratably over the term of the agreement.Fair value is based on the renewal rate for continued support arrangements.

 

*Allowance for Doubtful Accounts.*  We maintain an allowance fordoubtful accounts at an amount we estimate to be sufficient to provide adequateprotection against losses resulting from extending credit to our customers.  In judging the adequacy of the allowance fordoubtful accounts, we consider multiple factors including historical bad debtexperience, the general economic environment, the need for specific customerreserves and the aging of our receivables. This provision is included inoperating expenses as a general and administrative expense. A considerableamount of judgment is required in assessing these factors. If the factorsutilized in determining the allowance do not reflect future performance, then achange in the allowance for doubtful accounts would be necessary in the periodsuch determination has been made impacting future results of operations.

 

*Sales Returns and Allowances*.** **Althoughwe do not provide a contractual right of return, in the course of arriving atpractical business solutions to various warranty and other claims, we haveallowed sales returns and allowances. We record a provision for estimated salesreturns and allowances on licenses in the same period the related revenues arerecorded or when current information indicates additional amounts are required.These estimates are based on historical experience determined by analysis ofspecific return activity and other known factors. If the historical data weutilize does not reflect future performance, then a change in the allowanceswould be necessary in the period such determination has been made impactingfuture results of operations.

 

*Valuation of Long-Lived and Intangible Assets and Goodwill.***  **In accordance with SFASNo. 144 “*Accounting for the Impairment or Disposal ofLong-Lived Assets*,”******we review identifiable intangible and other long-livedassets for impairment whenever events or changes in circumstances indicate thecarrying amount may not be recoverable. Events or changes in circumstances thatindicate the carrying amount may not be recoverable include, but are notlimited to a significant decrease in the market value of the business or assetacquired, a significant adverse change in the extent or manner in which thebusiness or asset acquired is used or a significant adverse change in the businessclimate. If such events or changes in circumstances are present, theundiscounted cash flows method is used to determine whether the long-livedasset is impaired. Cash flows would include the estimated terminal value of theasset and exclude any interest charges. To the extent the carrying value of theasset exceeds the undiscounted cash flows over the estimated remaining life ofthe asset; the impairment is measured using the discounted cash flows method.The discount rate utilized would be based on management’s best estimate of therelated risks and return at the time the impairment assessment is made.

 

In accordance with SFAS No. 142 “*Goodwill andOther Intangible Assets”* if events or changes in circumstances indicatethe carrying amount may not be recoverable, the first step of the goodwillimpairment test, used to identify potential impairment, compares the fair valueof a reporting unit with its carrying amount, including goodwill. We operate asone reporting unit and therefore compare our book value to 

 

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market value. Market value is determined utilizing our marketcapitalization plus a control premium. If our market value exceeds our bookvalue, goodwill is considered not impaired, thus the second step of theimpairment test is not necessary. If our book value exceeds our market value,the second step of the goodwill impairment test is performed to measure theamount of impairment loss, if any. The second step of the goodwill impairmenttest, used to measure the amount of impairment loss, compares the implied fairvalue of the goodwill with the book value of the goodwill. If the carryingvalue of the goodwill exceeds the implied fair value of the goodwill, animpairment loss would be recognized in an amount equal to the excess. Any lossrecognized cannot exceed the carrying amount of goodwill. After a goodwillimpairment loss is recognized, the adjusted carrying amount of goodwill is thenew accounting basis. A subsequent reversal of a previously recognized goodwillimpairment loss is prohibited once the measurement of that loss is completed.

 

*IncomeTaxes*.  Significant judgment is required in determining the income taxes in each of thejurisdictions in which we operate. This process involves estimating our actualcurrent tax exposure together with assessing temporary differences resultingfrom the different treatment of specific items for tax and financial reportingpurposes. These differences result in deferred tax assets and liabilities,which are included within our Condensed Consolidated Balance Sheets. Althoughwe believe our assessments are reasonable, no assurance can be given that thefinal tax outcome of these matters will not be different than that which isreflected in our historical income tax provisions, benefits and accruals. Suchdifferences could have a material effect on our income tax provision and netincome in the period in which such a determination is made.

 

We are required to evaluatethe likelihood that our net deferred tax assets will be recovered from futuretaxable income and to the extent we believe that recovery is not likely, wemust establish a valuation allowance. To the extent we establish a valuationallowance, we must include an expense within the tax provision included in thestatement of operations. As of August 31, 2005, andMay 31, 2005, the Condensed Consolidated Balance Sheets include netdeferred tax assets in the amount of $30.6 million and $30.7 million,respectively. We have evaluated and determined that no additional adjustment isrequired to the valuation allowance as of August 31, 2005.

 

Our methodology fordetermining the realization of our deferred tax assets involves estimates offuture taxable income from our core business, the estimated impact of futurestock option deductions from the exercise of outstanding stock options, and theexpiration dates and amounts of state, federal and foreign net operating lossesand other carryforwards in addition to various tax credits. These estimates areprojected through the life of the related deferred tax assets based onassumptions that management believes to be reasonable and consistent withcurrent operating results.

 

Although we had cumulativepre-tax income for financial reporting purposes for twelve cumulative quartersended August 31, 2005, we did not pay any significant income taxes duringthat period because tax deductions from the exercise of stock options grantedprior to our initial public offering generated tax operating losses.  In assessing the future realization of ourdeferred tax assets as of August 31, 2005, we considered evidenceregarding our ability to generate sufficient future taxable income to realizeour deferred tax assets. The primary evidence considered included thecumulative tax operating loss for the past three years; the cumulative pre-taxincome for financial reporting purposes for the past twelve cumulative quarters;the estimated impact of future tax deductions from the exercise of stockoptions outstanding as of August 31, 2005; and the estimated futuretaxable income based on historical operating results.

 

We estimate, based largelyon historical income, that it may take ten years or more before we fullyutilize our current U.S. based deferred tax assets associated with the taxloss and tax credit carryforwards. After giving consideration to these factors,we concluded that it was more likely than not that tax loss carryforwards andother tax credit carryforwards that expire within the next ten years will notbe utilized. For the quarter ended August 31, 2005, we determinedthat there was no additional valuation allowance required.

 

We also concluded that itwas more likely than not that the net deferred tax assets of $30.6 millionas of August 31, 2005, as well as the estimated future tax deductionsfrom the exercise of stock options outstanding as of August 31, 2005,would be utilized prior to expiring in greater than ten years. Based on this 

 

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conclusion,we would require approximately $115.1 million in cumulative future taxableincome to be generated at various times over the next twenty years to realizethe related net deferred tax assets of $30.6 million as of August31, 2005, as well as the estimated future tax deductions from the exerciseof stock options outstanding as of August 31, 2005.

 

In the event that we adjustestimates of future taxable income or tax deductions from the exercise of stockoptions, or our stock price increases significantly without a correspondingincrease in taxable income, we may need to establish an additional valuationallowance, which could materially impact our financial position and results ofoperations.

 

*Contingencies.*  Weare subject to the possibility of various loss contingencies in the normal courseof business. We accrue for loss contingencies when a loss is estimatable andprobable.

 

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**Results of Operations**

 

The followingtable sets forth certain line items in our condensed consolidated statements ofoperations as a percentage of total revenues for the periods indicated:

 
| ** **                            | ** ** | **Percent of Total Revenue  Three Months Ended  August 31,** | ** ** | **Percent of  Dollar Change  Quarter over  Quarter** | ** ** |
|---------------------------------------|------------|--------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                            | ** ** | **2005**                                                     | ** ** | **2004**                                             | ** ** | **2005/2004** | ** ** |
|                                  |       |                                                         |       |                                                 |       |   |   |
| Revenues:                             |       |                                                         |       |                                                 |       |   |   |
| License fees                          |       | 21.2                                                         | %          | 16.0                                                 | %          | 40.4 | % |
| Services                              |       | 78.8                                                         |       | 84.0                                                 |       | (0.2 | ) |
| Total revenues                        |       | 100.0                                                        |       | 100.0                                                |       | 6.3 |   |
|                                  |       |                                                         |       |                                                 |       |   |   |
| Cost of revenues:                     |       |                                                         |       |                                                 |       |   |   |
| Cost of license fees                  |       | 2.8                                                          |       | 2.9                                                  |       | 1.9 |   |
| Cost of services                      |       | 37.2                                                         |       | 44.1                                                 |       | (10.2 | ) |
| Total cost of revenues                |       | 40.0                                                         |       | 47.0                                                 |       | (9.5 | ) |
|                                  |       |                                                         |       |                                                 |       |   |   |
| Gross margin                          |       | 60.0                                                         |       | 53.0                                                 |       | 20.3 |   |
|                                  |       |                                                         |       |                                                 |       |   |   |
| Operating expenses:                   |       |                                                         |       |                                                 |       |   |   |
| Research and development              |       | 16.5                                                         |       | 18.9                                                 |       | (7.3 | ) |
| Sales and marketing                   |       | 21.6                                                         |       | 25.3                                                 |       | (9.5 | ) |
| General and administrative            |       | 19.2                                                         |       | 10.0                                                 |       | 104.5 |   |
| Restructuring                         |       | 0.0                                                          |       | (0.1                                                 | )          | 113.3 |   |
| Amortization of acquired  intangibles |       | 0.4                                                          |       | 0.5                                                  |       | (2.9 | ) |
| Total operating expenses              |       | 57.7                                                         |       | 54.6                                                 |       | 12.3 |   |
|                                  |       |                                                         |       |                                                 |       |   |   |
| Operating income (loss)               |       | 2.3                                                          |       | (1.6                                                 | )     | 256.1 |   |
|                                  |       |                                                         |       |                                                 |       |   |   |
| Other income                          |       | 2.6                                                          |       | 0.8                                                  |       | 257.0 |   |
| Income (loss) before income  taxes    |       | 4.9                                                          |       | (0.8                                                 | )     | 752.3 |   |
| Provision (benefit) for income  taxes |       | 0.1                                                          |       | (0.3                                                 | )     | (167.1 | ) |
| Net income (loss)                     |       | 4.8                                                          | %          | (0.5                                                 | )%         | 1,101.7 | % |

 

**Three Months EndedAugust 31, 2005 Compared To Three Months Ended August 31, 2004**

 

***Revenues***

 

*TotalRevenues.*    We licensesoftware under non-cancelable license agreements and provide relatedprofessional services including consulting, training, and implementationservices, as well as ongoing customer support. Total revenues increased to $87.9 millionfor the three months ended August 31, 2005 from $82.7 million for thethree months ended August 31, 2004, representing an increase of 6.3%. The $5.2million increase in total revenues was attributed to a $5.3 million increase inlicense fees that was partially offset by a $0.1 million decrease in services.

 

*License Fees.*    Revenues from license fees increased to $18.6million for the three months ended August 31, 2005 from $13.3 millionfor the three months ended August 31, 2004, representing an increase of 40.4%.The $5.3 million increase resulted from an increase in the average sellingprice of licenses as compared to the prior year period.  In fiscal 2005, we were significantly impactedby the Oracle/PeopleSoft merger completed approximately nine months ago. Sinceour average sales cycle is nine months, deals that were started afterthe Oracle/PeopleSoft merger was completed, are just beginning to be reflectedin the first quarter fiscal 2006 results. We have seen increased activity innew client sales since the uncertainty caused 

 

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by the merger has dissipated and Lawson is more frequently beingselected as a potential candidate.   In addition, since most public companies havetheir initial year of Sarbanes-Oxley compliance behind them, we are seeingincreased sales activity. The average selling price of our licensingtransactions increased 40.8% while the number of licensing transactionsdecreased 10.7% as compared to fiscal 2005. Revenues from license fees as a percentage of total revenues for thethree months ended August 31, 2005 and 2004 were 21.2% and 16.0%, respectively.

 

*Services.*    Revenuesfrom services decreased to $69.3 million for the three months endedAugust 31, 2005 from $69.4 million for the three months endedAugust 31, 2004, representing a decrease of 0.2%.  The $0.1 million decrease in services includesa $2.9 million increase in support revenue that was more than offset by a $3.0million decrease in consulting revenue. The $2.9 million increase in supportrevenue was primarily due to general price increases. We maintained high renewalrates for customer support during the three months ended August 31, 2005. The $3.0million decrease in consulting revenue was primarily due to a decline in fiscalyear 2005 license contracting activity which resulted in fewer consultingopportunities during the first quarter of fiscal 2006.  As contracting volumes continue to increase,service revenues are expected to show growth in subsequent quarters.   Services as a percentage of total revenuesfor the three months ended August 31, 2005 and 2004 were 78.8% and 84.0%,respectively.

 

***Costof Revenues***

 

*Costof License Fees.*   Cost of license feesincludes royalties to third parties, amortization of acquired software andsoftware delivery expenses. Our software solutions may include embeddedcomponents of third-party vendors, for which a fee is paid to the vendor uponsale of our products. In addition, we resell third-party products inconjunction with the license of our software solutions. The cost of licensefees is higher when we resell products of third-party vendors. As a result,gross profits may vary depending on the proportion of third-party product salesin our revenue mix.

 

Cost of licensefees remained consistent for the three months ended August 31, 2005 and 2004,despite the fact that license fees increased, primarily as a result of adecline in the proportion of third-party sales in our revenue mix.  Cost of license fees as a percentage of totalrevenues for the three months ended August 31, 2005 and 2004 were 2.8% and2.9%, respectively. Gross margin on revenue from license fees was 87.0% and 82.1%for the three months ended August 31, 2005 and 2004, respectively.

 

*Costof Services. *Costof services includes the salaries, employee benefits and related travel andoverhead costs for providing consulting, training, implementation and supportservices to customers as well as intangible asset amortization on supportcontracts purchased in April 2004.  Cost of services decreased to $32.7 millionfor the three months ended August 31, 2005 from $36.5 million for thethree months ended August 31, 2004, representing a decrease of 10.2%.  The $3.8 million decrease in cost of serviceswas primarily due to a $3.5 million decrease in employee costs resulting fromworkforce reductions and other headcount changes, which occurred since theprior year period.  Cost of services as apercentage of total revenues for the three months endedAugust 31, 2005 and 2004 were 37.2% and 44.1%, respectively.  Gross margin on services revenues were 52.8%and 47.5% for the three months ended August 31, 2005 and 2004,respectively.

 

***OperatingExpenses***

 

*Researchand Development.*    Research anddevelopment expenses consist primarily of salaries, employee benefits, relatedoverhead costs and consulting fees relating to product development,enhancements, upgrades, testing, quality assurance and documentation.  Research and development expenses decreasedto $14.5 million for the three months ended August 31, 2005, from $15.6 millionfor the three months ended August 31, 2004, representing a decrease of 7.3%.The $1.1 million decrease in research and development was primarily due to a $1.6million decrease in employee and related costs resulting from workforcereductions and a $0.6 million decrease related to contract personnel, traveland equipment lease costs.  The decreaseswere partially offset by a $0.9 million increase in incentivecompensation.  Research and developmentexpenses as a percentage of total revenues for the three months endedAugust 31, 2005 and 2004 were 16.5% and 18.9%, respectively.

 

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*Salesand Marketing.*   Sales and marketingexpenses consist primarily of salaries and incentive compensation, employeebenefits and travel and overhead costs related to our sales and marketingpersonnel, as well as trade show activities and advertising costs.  Sales and marketing expenses decreased to $19.0million for the three months ended August 31, 2005 from $21.0 millionfor the three months ended August 31, 2004, representing a decrease of 9.5%.

 

The $2.0million decrease in sales and marketing expenses was due to a $2.8 milliondecrease in costs associated with marketing initiatives, consulting andadvertising costs a $2.0 million decrease in employee and related costs due toworkforce reductions and a $0.5 million decrease in travel related costs.  These decreases were partially offset by a$2.0 million increase in incentive compensation, a $0.9 million increase in trainingand other related costs and a $0.4 million increase in costs related to thepending merger with Intentia.  Sales andmarketing expenses as a percentage of total revenues for the three months endedAugust 31, 2005 and 2004 were 21.6% and 25.3%, respectively.

 

*General and Administrative.*    General andadministrative expenses consist primarily of salaries, employee benefits andrelated overhead costs for administrative employees, as well as legal andaccounting expenses, consulting fees, bad debt expense and corporate insurancepolicies, including property and casualty, general liability and otherinsurance.  General and administrativeexpenses increased to $16.9 million for the three months endedAugust 31, 2005 from $8.3 million for the three months endedAugust 31, 2004, representing an increase of 104.5%.

 

The $8.6 million increase ingeneral and administrative expenses was primarily due to $7.3 million in costsassociated with the departure of the former president and CEO.  These costs included a $6.3 million non-cashcharge for stock option expense and a $1.0 million cash payment resulting froma negotiated separation agreement.  Theremaining increase was due primarily to a $1.6 million increase in incentivecompensation and a $0.8 million increase in costs for the potential merger withIntentia.  The increases in costs werepartially offset by a decrease of $1.4 million in bad debt expense primarilydriven by improved aging of receivables due to strong collection efforts andlower specific reserves.  General andadministrative expenses as a percentage of total revenues for the three monthsended August 31, 2005 and 2004 were 19.2.% and 10.0%, respectively.

 

*Restructuring.*   During the three months ended August 31, 2005 we recorded an additionalrestructuring charge of $0.01 million compared to a reversal of therestructuring charge of $0.08 million, for the three months ended August 31,2004. See Note 7 of Notes to Condensed Consolidated Financial Statements for asummary of activity for the three months ended August 31, 2005.

 

*Amortization of Acquired Intangibles. * Amortizationof acquired intangibles of $0.4 million for the three months endedAugust 31, 2005 was consistent with the three months ended August 31,2004.

 

***OtherIncome, Net***

 

Other income, net,which is primarily comprised of interest income earned from cash, marketablesecurities and long term investments increased to $2.3 million for the threemonths ended August 31, 2005 from $0.6 million for the three months endedAugust 31, 2004.  The $1.6 million increasein interest income was due primarily to a $54.3 million increase in averageinvested balances and an increase in average yields which were 3.2% and 1.4%for the three months ended August 31, 2005 and 2004, respectively, and $0.4million in interest income received on a tax refund.

 

***Provision(Benefit)for Income Taxes***

 

We recorded an income taxprovision of $0.2 million for the three months ended August 31, 2005 comparedto an income tax (benefit) of ($0.2 million) for the three months ended August31, 2004. Our income tax provision (benefit) is based on pretax income (loss)and consists primarily of federal and state income taxes.  The quarterly tax expense is measured using anestimated annual tax rate for the period. At August 31, 2005, the Company’s estimated annual tax rate is 40.7%.Our effective tax rate was 3.8% and 

 

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37.4%for the three months ended August 31, 2005 and 2004, respectively. The decreasedeffective tax rate was primarily the result of releasing $1.6 million of taxreserves.  We review our reportedeffective tax rate on a quarterly basis and make any necessary changes.

 

**Liquidity and CapitalResources**

 

 
| ** **                                           | ** ** | **As of and for the Three Months Ended  August 31,** | ** ** |
|------------------------------------------------------|------------|------------------------------------------------------|------------|
| **(in millions, except %)**                     | ** ** | **2005**                                             | ** ** | **2004** | ** ** | **Change** | ** ** |
| Working  capital                                     |       | $                                                    | 195.7      |   | $ | 164.8 |   | 18.8 | % |
| Cash and  cash equivalents and marketable securities |       | $                                                    | 251.7      |   | $ | 184.5 |   | 36.4 | % |
| Cash  provided by (used in) operating activities     |       | $                                                    | 16.1       |   | $ | (17.9 | ) | 189.5 | % |
| Cash  provided by (used in) investing activities     |       | $                                                    | 8.4        |   | $ | (6.9 | ) | 223.3 | % |
| Cash  provided by (used in) financing activities     |       | $                                                    | 2.5        |   | $ | (5.7 | ) | 144.6 | % |

 

As of August31, 2005, we had $251.7 million in cash, cash equivalents and marketablesecurities and $195.7 million in working capital. Our most significant sourceof operating cash flows is derived from license fees and services to our customers.Days sales outstanding, which is calculated on net receivables at period enddivided by revenue for the quarter times 90 days in the quarter, was 46 and 45as of August 31, 2005 and May 31, 2005, respectively.  Our primary uses of cash from operatingactivities are for employee costs, third-party costs for licenses and services,and facilities.

 

We believethat cash flows from operations, together with our cash, cash equivalents andmarketable securities, will be sufficient to meet our cash requirements forworking capital, capital expenditures and investments for the foreseeablefuture. As part of our business strategy, we may acquire companies or productsfrom time to time to enhance our product lines. On June 2, 2005, we entered into an agreement to combine withStockholm, Sweden-based Intentia International AB.  We intend this to be an all-stocktransaction; however, we may utilize cash to acquire certain shares as well asto fund acquisition related costs.  Weare estimating these acquisition related costs to be in the range of $75million to $100 million, which includes costs to close the transaction,integration costs once the transaction is completed, the pay-off of loans and$42 million if all the Intentia shares are not tendered and we are required topurchase them for cash.  We believe wehave sufficient cash to fund this business transaction.  For additional information, refer to Note 5,“Pending Business Combination” in the Notes to the Condensed ConsolidatedFinancial Statements.

 

***Cash flows from operating activities:***

 

Net cash provided fromoperating activities was $16.1 million for three months ended August 31,2005 compared with $17.9 million of net cash used by operating activities forthe three months ended August 31, 2004. Our net income of $4.2 millionwas increased by non-cash charges resulting in $9.1 million of cash fromoperations before working capital changes. Non-cash charges include a $6.3stock compensation charge related to a negotiated separation agreement with theCompany’s former president and chief executive officer. The net working capitalchanges of $2.8 million increased the overall cash provided to $16.1 million.

 

The significant activity incash flows from working capital changes for fiscal 2006 primarily relatedto a decrease of $8.4 million in prepaid expenses and other assets and a $0.9 milliondecrease in cash from trade accounts receivable, which was partially offset bya $3.8 million net decrease in accounts payable,  accrued expenses and other liabilities, and a$1.0 million decrease in deferred revenue and customer deposits. The $8.4million decrease in prepaid expenses and other assets was primarily due to thereceipt of $8.8****million in a federal tax refund includinginterest.  The $0.9 million increasein trade accounts receivable was primarily due to higher levels of servicesthat were performed but not yet collectible under terms of the agreement.

 

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The $3.8 milliondecrease in accounts payable, accrued expenses and other liabilities was dueprimarily to an overall reduction in accounts payable, seasonal vacation usageand the payment of costs associated with the Intentia acquisition that wereoutstanding at May 31, 2005.

 

Deferred revenue has beenprimarily restored over the last twelve months ending August 31, 2005. Duringthe first quarter ended August 31, 2004, cash flows from operating activitieswere negatively impacted by a change in customer billing cycles for customersupport agreements.  This change resultedin initially smaller customer invoices due to pro-rated billings in an effortto get individual multiple customer support billings on a common renewaldate.  Since the initial change, deferredrevenue balances over the last twelve months have been primarily restored asbilling cycles became synchronized.

 

***Cash flows from investing activities:***

 

Net cashprovided from investing activities was $8.4 million for the three months ended August 31,2005 compared with $6.9  million in cash used by investingactivities for the three months ended August 31, 2004.   The increase in cash from investingactivities for the three months ended August 31, 2005 primarily related to$10.0 million of cashreceived from net maturities of marketable securities. A majority of the cashfrom maturities was related to Dutch auction rate securities that have beeninvested in shorter term securities included in cash equivalents.  We have generally used proceeds from thematurities and sales of marketable securities to fund capital expenditures,share repurchases, and to repay debt.

 

We have madereclassifications to our Condensed Consolidated Statement of Cash Flows forfiscal 2004 to reflect the gross purchases and gross sales of Dutchauction rate securities as investing activities rather than as a component ofcash and cash equivalents. Refer to Note 1, “Basis of Presentation” in theNotes to the Condensed Consolidated Financial Statements.

 

***Cash flows from financing activities***:

 

Net cash providedfrom financing activities was $2.5 million for the three months ended August 31,2005 compared with $5.7 million in cash used by financingactivities for the three months ended August 31, 2004.  The financing activities for the three monthsended August 31, 2005 primarilyrelated to $2.0 million in cashreceived from the exercise of stock options and $1.5 million in cash receivedfrom employee contributions to our employee stock purchase plan.

 

#### ***Repurchaseof Common Shares***

 

In June 2003,our Board of Directors authorized us to repurchase, from time to time, up to $50.0million of our common shares. Shares were repurchased as market conditionswarranted either through open market transactions, block purchases, privatetransactions or other means.  During thethree months ended August 31, 2004, we completed the authorized stockrepurchase plan by purchasing the remaining 1.4 million shares for $10.0million in cash.  Cash proceeds obtainedfrom maturities of marketable securities, the exercise of employee stockoptions and the employee stock purchase plan largely funded the sharerepurchase.  The repurchasedshares are recorded as treasury stock and result in a reduction to stockholdersequity. The shares are being used for general corporate purposes.

 

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**Disclosuresabout Contractual Obligations and Commercial Commitments**

 

The followingsummarizes our contractual obligations at August 31, 2005, and theeffect these contractual obligations are expected to have on our liquidity andcash flows in future periods (in thousands):

 
| ** **                                  | ** ** | **Total** | ** ** | **1 Year or  Less** | ** ** | **1-3 Years** | ** ** | **3-5 Years** | ** ** | **More than  5 Years** | ** ** |
|---------------------------------------------|------------|-----------|------------|---------------------|------------|---------------|------------|---------------|------------|------------------------|------------|
| **Balance  Sheet Contractual Obligations:** |       |      |       |                |       |          |       |          |       |                   |       |
| Debt                                        |       | $         | 871        |                | $          | 871           |       | $             | —     |                   | $          | — |   | $ | — |   |
| Strategic  partner commitments (2) (3) |       | 1,000     |       | 1,000               |       | —        |       | —        |       | —                 |       |
| Total                                       |       | $         | 1,871      |                | $          | 1,871         |       | $             | —     |                   | $          | — |   | $ | — |   |
| **Other  Contractual Obligations:**         |       |      |       |                |       |          |       |          |       |                   |       |
| Operating  leases                           |       | $         | 72,543     |                | $          | 8,307         |       | $             | 16,577     |                   | $          | 16,265 |   | $ | 31,394 |   |
| Purchase  obligations (1)                   |       | 13,534    |       | 8,254               |       | 4,804         |       | 476           |       | —                 |       |
| Total                                       |       | $         | 86,077     |                | $          | 16,561        |       | $             | 21,381     |                   | $          | 16,741 |   | $ | 31,394 |   |
|                                        |       |      |       |                |       |          |       |          |       |                   |       |
| **Total  Contractual Obligations**          |       | $         | 87,948     |                | $          | 18,432        |       | $             | 21,381     |                   | $          | 16,741 |   | $ | 31,394 |   |

 

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(1)           Ourpurchase obligations represent those commitments greater than $50,000

 

(2)           Under the Agreement with Hackett that commenced May 9, 2005, the Companypaid $1.1 million during the three months ended August 31, 2005, and is contractuallycommitted to pay an additional $1.0 million within the next twelve months.In addition, the Company will pay additional fees when sales volumes meetestablished criteria throughout the term of the contract.  SeeNote 9 “Commitments and Contingencies” to the Condensed ConsolidatedFinancial Statements for additional information.

 

(3)           On May 9, 2005, the Company and InternationalBusiness Machines Corporation (IBM) entered into an OEM Software Agreement anda Master Relationship Agreement (MRA). Under these agreements, the Company will resell its businessapplications in conjunction with IBM’s open standards-based software, and thecompanies will jointly market these software solutions.  The MRA governs the joint marketingactivities and has a three-year term.  Asof August 31, 2005, no amounts were accrued within the Condensed ConsolidatedBalance Sheet or included in the above table as the agreement can be terminatedupon 90 days notice by either party.

 

At the Company’s request, onSeptember 13, 2005, the Company and IBM modified the OEM Software Agreementconcerning the calculation of royalties and timing of payments to IBM, and thetiming of inclusion of IBM programs in the solutions offered by theCompany.  Under the modified agreement,the option to terminate the agreement upon 90 days notice by either party stillexists; however upon execution of the agreement, the Company has committed topay $1.7 million by December 2005 and in the event of termination, a proratedportion of a $ 0.6 million annual payment from September 13, 2005 through thedate of termination.  This commitment hasnot been disclosed in the table above as it did not exist at August 31, 2005.See Note 9 “Commitments and Contingencies” to the Condensed ConsolidatedFinancial Statements for additional information.

 

**Off-Balance-SheetArrangements**

 

Wedo not use off-balance-sheet arrangements with unconsolidated entities, relatedparties or other forms of off-balance-sheet arrangements such as research anddevelopment arrangements. Accordingly, our liquidity and capital resources arenot subject to off-balance-sheet risks from unconsolidated entities. As of 

 

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August 31, 2005,we did not have any off-balance-sheet arrangements, as defined in Item303(a)(4)(ii) of SEC Regulation S-K.

 

Wehave entered into operating leases for most U.S. and international sales andsupport offices and certain equipment in the normal course of business. Thesearrangements are often referred to as a form of off-balance-sheet financing. Asof August 31, 2005, we leased facilities and certain equipment under non-cancelableoperating leases expiring between 2005 and 2017. Rent expense underoperating leases for the three months ended August 31, 2005 and 2004 were $3.6million and $3.4 million, respectively. Future minimum lease payments under ouroperating leases as of August 31, 2005 are included above in “Disclosuresabout Contractual Obligations and Commercial Commitments”.

 

**RecentAccounting Pronouncements**

 

In December 2004 theFinancial Accounting Standards Board (FASB) issued Statement of FinancialAccounting Standard No. 123 (revised 2004), *Share-Based Payment (“SFAS No. 123(R)”)*.SFAS No. 123(R) requires compensation cost relating to unvestedshare-based payment transactions that are outstanding as of the effective dateand newly issued transactions to be recognized in the financial statements.That cost will be measured based on the fair value of the equity or liabilityinstruments issued. SFAS No. 123(R) covers a wide range of share-basedcompensation arrangements including share options, restricted share plans,performance-based awards, share appreciation rights and employee share purchaseplans. SFAS No. 123(R) supersedes SFAS No. 123, *Accounting for Stock-Based Compensation*(“SFAS No. 123”), and supersedesAccounting Principles Board Opinion No. 25, *Accounting for Stock Issued to Employees*(“Opinion 25”)*.*SFAS No. 123, as originally issued in 1995,established a fair-value-based method of accounting for share-based paymenttransactions with employees. However, SFAS No. 123 permitted entities theoption of continuing to apply the guidance in Opinion 25, as long as the footnotesto financial statements disclosed what net income would have been had thefair-value-based method been used. We elected the option of disclosure onlyunder SFAS No. 123. In our disclosures, we have historically used theBlack-Scholes option pricing model to determine the fair value of its sharebased compensation arrangements. Upon the adoption of SFAS No. 123(R), wewill determine whether it will continue to utilize the Black-Scholes model oradopt some other acceptable model. Public entities will be required to applySFAS No. 123(R) as of the first annual reporting period that begins afterJune 15, 2005, which is effective with our first quarter offiscal 2007. Based on our significant amount of unvested share-basedpayment awards, the adoption of this statement is anticipated to have amaterial impact on our Consolidated Statements of Operations, however we arecurrently evaluating the impact.

 

InDecember 2004, the FASB issued SFAS No. 153, “Exchanges ofNonmonetary Assets - An Amendment of APB Opinion No. 29” (“SFAS 153”). Theamendments made by SFAS 153 are based on the principle that exchanges ofnonmonetary assets should be measured based on the fair value of the assetsexchanged. Further, the amendments eliminate the narrow exception fornonmonetary exchanges of similar productive assets and replace it with abroader exception for exchanges of nonmonetary assets that do not have “commercialsubstance.” The provisions in SFAS 153 are effective for nonmonetary assetexchanges occurring in fiscal periods beginning after June 15, 2005,which is effective with our second quarter of fiscal 2006. Adoption ofthis standard is not expected to have a material impact on our consolidatedfinancial statements.

 

InMay 2005, the FASB issued SFAS No 154, “Accounting Changes and ErrorCorrections — A replacement of APB Opinion No 20 and FASB Statement No. 30”(“SFAS 154”).  SFAS 154 changes therequirement for the accounting for and reporting of a change in accountingprinciple.  This statement applies to allvoluntary changes in accounting principles and changes required by anaccounting pronouncement in the unusual instance that the pronouncement doesnot include specific transition provisions. The provisions in SFAS 154 are effective for accounting changes andcorrection of errors made in fiscal years beginning afterDecember 15, 2005, which is effective with our first quarter offiscal 2007. We intend to adopt the disclosure requirements upon theeffective date of the pronouncement. Since this pronouncement only relates to disclosure requirements, theadoption will have no impact on our consolidated financial statements.

 

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**FactorsThat May Affect Future Results or the Market Price of Our Stock**

 

We operate ina rapidly changing environment that involves numerous uncertainties and risks.Investors evaluating our company and its business should carefully consider thefactors described below and all other information contained in this report onForm 10-Q. This section should be read in conjunction with theCondensed Consolidated Financial Statements and Notes thereto and Management’sDiscussion and Analysis of Financial Condition and Results of Operationsincluded in this report on Form 10-Q. Any of the following factors couldmaterially harm our business, operating results and financial condition.Additional factors and uncertainties not currently known to us or that wecurrently consider immaterial could also harm our business, operating resultsand financial condition. We may make forward-looking statements from time totime, both written and oral. We undertake no obligation to revise or publiclyrelease the results of any revisions to these forward-looking statements basedon circumstances or events which occur in the future. The actual results maydiffer materially from those projected in any such forward-looking statementsdue to a number of factors, including those set forth below and elsewhere inthis report on Form 10-Q.

 

**RisksRelating to the Proposed Business Combination between Lawson and IntentiaInternational****AB**

 

On June 2, 2005,we announced an agreement to combine Lawson with Intentia International AB inan all-stock transaction Exchange Offer. If the transaction is completed,Lawson will issue approximately 81 million shares of Lawson common stockpursuant to the terms of the Exchange Offer. If the Exchange Offer is acceptedand the transaction is completed, each Series A share of Intentia stockwill be entitled to receive 0.5061 newly issued shares of Lawson common stock;each Series B share of Intentia stock will be entitled to receive 0.4519newly issued shares of Lawson common stock; and each Warrant for the purchaseof Intentia stock will be entitled to receive 0.2157 newly issued shares ofLawson common stock. These exchange ratios will not change based on thefluctuations in the market price of our common stock. The closing of theExchange Offer and business combination with Intentia is subject to severalconditions, including approval by our stockholders, sufficient tender of sharesby Intentia securityholders and regulatory approval. Our efforts to close thebusiness combination and integrate our two businesses will create severaladditional risks and uncertainties.

 

***We may not be able toachieve the anticipated financial and strategic benefits of our proposedcombination with Intentia.***

*** ***

Among the factors considered by our Board of Directorsin connection with its approval of the Exchange Offer were the anticipatedfinancial and strategic benefits of the combination of Lawson and Intentia,including the opportunities for cost savings from operational efficiencies andthe anticipated increase in sales resulting from the combined efforts of both businessesand the combined sales channels. We are not able to guarantee that thesesavings will be realized within the time periods contemplated or that they willbe realized at all. We are not able to guarantee that the combination of Lawsonand Intentia will result in the realization of the full benefits, includingincreased sales anticipated by the businesses.

 

***The reconciliation of Intentia’s historical financial statements fromSwedish GAAP to United States GAAP will result in material differences.***

 

Intentia has informed us that its historical financialstatements for the nine month period ended December 31, 2004 have been preparedbased on generally accepted accounting principles in Sweden, referred to asSwedish GAAP and the three month period ended March 31, 2005 have been preparedin accordance with International Financial Reporting Standards. The documentsincluded in the Exchange Offer will include a reconciliation of Intentia’shistorical financial statements based on generally accepted accountingprinciples in the United States, referred to as U.S. GAAP.  That reconciliation is substantially completeas of the date of this Report on Form 10-Q. Because of the differences between Swedish GAAP and InternationalFinancial Reporting Standards with U.S. GAAP, including, for example,differences in software revenue recognition, Intentia’s historical financialresults under U.S. GAAP will show lower revenue, less favorable results ofoperations or other material differences for each of the respective periodspresented.  In addition, a substantial portionof Intentia’s deferred revenue under U.S. GAAP will not be recognizable in thefuture under U.S. GAAP due to the impact of purchase accounting.

 

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***Our investment in goodwill andintangibles from our acquisitions could become impaired.***

 

As of August 31, 2005, we had goodwill of$43.4 million and acquired intangibles of $29.7 million on our CondensedConsolidated Balance Sheet.  Upon completionof the pending merger with Intentia, we anticipate to have a significant increasein goodwill and acquired intangibles.  Tothe extent that we do not generate sufficient cash flows to recover the netamount of the goodwill and intangibles recorded, the goodwill and intangiblescould be subsequently written-off.  Insuch an event, our results of operations in any given period would benegatively impacted, and the market price of our stock could decline.

 

***The integration ofLawson’s and Intentia’s businesses will require significant focus on staffing,training and compliance procedures for our internal control over financialreporting under Section 404 of the Sarbanes-Oxley Act of 2002.***

*** ***

***As a Swedish company, Intentia has nothad to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of2002 concerning the effectiveness of internal controls over financialreporting.  Consequently, Intentia doesnot currently have the staff, experience, training or procedures to comply withthese requirements.  The integration ofLawson and Intentia will require significant focus on staffing and training toaddress these requirements.  If we areunable to implement our compliance procedures and have a properly trained staffin place on a timely basis, we could encounter a significant deficiency ormaterial weakness in our internal controls. If in the future we are unable to assert that our internal control overfinancial reporting is effective as of the end of the then current fiscal yearor applicable quarter (or, if our independent registered public accounting firmis unable to attest that our management’s report is fairly stated or they areunable to express an opinion on the effectiveness of our internal controls), wecould lose investor confidence in the accuracy and completeness of ourfinancial reports, which would have a negative market reaction.***

 

***We will encounter materialadverse consequences if we are unable to process and report, on a timely basis,the combined company’s financial results under U.S. GAAP and SEC requirements.***

 

Because themerger with Intentia will significantly increase the complexity of our globaloperations, we will need to develop and implement worldwide procedures designedfor accurate and timely financial reporting under U.S. GAAP and SECrequirements.  In addition, we will needto train the staff of the combined company to comply with these requirements ona global basis.  If we are unable toclose our books and prepare financial reports on a timely basis, we would berequired to seek a reporting extension under applicable SEC rules.  A reporting extension could adversely impactthe trading of our stock, erode investor confidence and result in othermaterial adverse consequences.

 

***We may not be able tosuccessfully integrate our business with the business of Intentia.***

*** ***

This transaction involves the integration of two businessesbased in different countries that currently operate independently. Thisintegration is a complex, costly and time-consuming process. Following thecombination of Lawson and Intentia, we may encounter difficulties inintegrating our operations, technology and personnel with those of Intentia andthis may continue for some time. Lawson management has limited experienceintegrating operations as substantial and geographically diverse as those ofIntentia. The combined company may not successfully integrate the operations ofLawson and Intentia in a timely manner, or at all. The failure to successfullyintegrate the two businesses’ operations could undermine the anticipatedbenefits and synergies of the combination, which could adversely affect ourbusiness, financial condition and results of operations. The anticipatedbenefits relate to greater economies of scale and revenue enhancementopportunities resulting from Lawson’s and Intentia’s complementary productofferings, geographic and industry specialties and technology platforms.However, these anticipated benefits are based on projections and assumptions,not actual experience, and assume a successful integration.

 

***We may have difficulties adaptingIntentia’s operations to US regulatory requirements.***

 

As a company governed by Swedish laws and therules of the Stockholm Stock Exchange, Intentia’s operations have not beendesigned to comply with financial reporting, disclosure controls and internalcontrols requirements imposed by US GAAP and the Sarbanes-Oxley Act of 2002 andother US securities laws and regulations. The implementation of the necessarycontrols systems will be costly and time consuming. If Lawson fails to promptlyimplement these controls and systems at Intentia’s operations, Lawson couldfail to comply with US regulatory requirements, which could adversely offsetour business, financial condition and results of operations.

 

***The market price of ourcommon stock may decline as a result of the Exchange Offer.***

*** ***

In connection with the Exchange Offer, we could issueas many as 81 million shares of our common stock to the holders of sharesand warrants if all Intentia securityholders elect to tender their shares or warrantsin exchange for shares of our common stock. The shares of our common stockissued in the Exchange Offer, subject to the contractual limitations on thosepersons who executed the lock-up agreements, will be freely-tradable uponconsummation of the Exchange Offer. The acquisition of our shares by Intentiasecurityholders who may not wish to hold shares in a US company, as well as theincrease in the outstanding number of shares of our common stock, may lead tosales of such shares or the perception that such sales may occur, either ofwhich may adversely affect the market for, and the market price of, our commonstock. In addition, the market price of our common stock may decline followingthe closing of the Exchange Offer for a number of reasons, including if theintegration of Intentia’s business is unsuccessful or we do not achieve theanticipated financial and strategic benefits of our combination with Intentiaas rapidly

 

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or to the extent anticipated by stock market analysts or investors. Theclosing price of our common stock was $5.95 on June 1, 2005, the lastday of trading prior to the announcement of the proposed Exchange Offer. Sincethat date, our stock has fluctuated from a low of $5.02 to a high of $6.94. On October7, 2005, the closing price of our common stock was $6.89.

 

***Our shareholders willsuffer immediate and substantial dilution to their equity and voting interestsas a result of the Exchange Offer.***

 

In connection with the Exchange Offer, we may issue asmany as 81 million sharesof our common stock to the holders of Shares or Warrants if all Intentiasecurityholders elect to tender their Shares or Warrants in exchange for sharesof our common stock. This means that the Intentia securityholders could own upto approximately 43.25% of the total number of shares of our outstanding commonstock following the Exchange Offer. Accordingly, the Exchange Offer will havethe effect of substantially reducing the percentage of equity and votinginterest held by each of our current stockholders.

 

***The Intentia securityholdersmay be able to influence our company significantly following the ExchangeOffer.***

 

After the Exchange Offer, former Intentiasecurityholders could own up to approximately 43.25% of the total number ofshares of our outstanding common stock. Intentia’s largest shareholder,Symphony Technology Group, will own approximately 13% of Lawson’s outstandingcommon stock following the combination. Symphony and Intentia securityholders as a group may be able to exercisesubstantial influence on the election of directors and other matters submittedfor approval by our shareholders. This potential concentration of ownership ofour common stock may make it difficult for our other shareholders tosuccessfully approve or defeat matters submitted for shareholder action. It mayalso have the effect of delaying, deterring or preventing a change in controlof our company without the consent of Symphony or of the Intentiasecurityholders generally.

 

***Unanticipated costsrelating to the Exchange Offer and resulting combination of Intentia and Lawsoncould reduce our future earnings.***

*** ***

We believe that we have reasonably estimated thelikely costs of integrating our operations with the operations of Intentia andthat such costs are estimated to be in excess of $15 million for the first12 months following closing of the transaction. Our objective is to minimizeincremental costs of operating as a combined company and we believe that anyincremental costs will be offset by cost savings of the combined company. It ispossible that unexpected transaction costs, such as taxes, fees or professionalexpenses, or unexpected future operating expenses, such as increased personnelcosts or unexpected severance costs, as well as other types of unanticipateddevelopments, could adversely impact our business and profitability.

 

***The uncertaintiesassociated with our combination with Intentia may cause our customers andIntentia’s customers to delay or defer decisions which may result in the lossof customers and revenues.***

*** ***

Our customers and Intentia’s customers may, inresponse to the announcement of the Exchange Offer and resulting combination ofLawson and Intentia, and prior to its effectiveness, delay or defer decisionsconcerning business with either or both of the businesses. Any delay ordeferral in those decisions by our respective customers could adversely affectour businesses. For example, either company could experience a decrease inexpected revenue as a consequence of such delays or deferrals.

 

***The uncertaintiesassociated with our combination with Intentia may cause Intentia or us to losekey personnel.***

*** ***

Employees of Lawson or Intentia may perceiveuncertainty about their future role with the combined company until strategieswith regard to the combined company are announced or executed. Any uncertaintymay affect either company’s ability to attract and retain key management,sales, marketing,

 

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technical and financial personnel.

 

***Combination-relatedaccounting charges may delay or reduce our profitability.***

 

We are accounting for the combination with Intentia asa purchase following accounting principles generally accepted in the UnitedStates. Under the purchase method of accounting, the purchase price of Intentiawill be allocated to the fair value of the identifiable tangible and intangibleassets and liabilities that we acquire from Intentia. In addition, accountingfor the combination of Intentia under the purchase method may require adecrease in deferred revenue to fair value. The excess of the purchase priceover Intentia’s tangible net assets will be allocated to goodwill andintangible assets. We are required to perform periodic impairment tests ongoodwill and certain intangibles to evaluate whether the intangible assets andgoodwill that we acquire from Intentia continue to have fair values that meetor exceed the amounts recorded on our balance sheet. If the fair values of suchassets decline below their carrying value on our balance sheet, we may berequired to recognize an impairment charge related to such decline. We cannotpredict whether or when there will be an impairment charge, or the amount ofsuch charge, if any. However, if the charge is significant, it could cause themarket price of our common stock to decline.

 

If as of the closing date there are unknownliabilities in connection with Intentia’s business, and those liabilities arenot reflected on the closing date balance sheet, we would be required to recorda charge during each period when those liabilities became known, probable andestimable.  Those charges, if material,could have an unanticipated and significant adverse effect on our financialresults and stock price.

 

In addition, we will incurtransaction and integration costs in our combination with Intentia.  As a result, we will incur accounting chargesfrom the combination that may delay and reduce our profitability in theaccounting period in which the combination is consummated.

 

***We expect to expend asignificant amount of cash in the Exchange Offer, which will partially depleteour cash balance.***

*** ***

If we acquire morethan 90%, but fewer than all of the Intentia securities in the Exchange Offer,we intend to purchase the remaining Intentia securities for cash, pursuant tocompulsory acquisition proceedings under Swedish law. Assuming 90% of theIntentia securities are tendered in the Exchange Offer and the price that isrequired to be paid pursuant to the Swedish compulsory acquisition proceedingsfor the remaining 10% of the Intentia securities equals SEK 22.17 perSeries A share and SEK 19.80 per Series B share, we could beobligated to pay approximately $47 million (approximately SEK 355 millionassuming a currency exchange rate of SEK 7.56 to $1.00 as of August 31, 2005),for the Intentia securities purchased in the compulsory acquisition. This cashexpenditure would normally occur between one and three years after the closingof the Exchange Offer.

 

We estimatethat the total cash closing expenses for Lawson and Intentia will beapproximately $15 million, including investment banking fees, accounting andlegal fees, printing, mailing and other out-of-pocket transaction costs. Afterpayment of those expenses, we will have approximately $254 million inavailable cash and cash equivalents, based on the amount of cash and cashequivalents that we and Intentia had as of August 31, 2005.  It is anticipated that we may use anadditional amount of approximately $50 million in connection with thetransaction, excluding the compulsory acquisition procedures referenced aboveand integration related costs, within one to three years following the closingof the Exchange Offer.  Included in thisamount is a junior facility loan to Tennenbaum valued at $27.4 million, whichincludes accrued interest of $0.6 million, as of August 31, 2005,maturing in September 2009, and a make-whole provision of approximately$9.0 million, totaling $36.4 million. Also included in this amount are the remaining 1999 convertible B notesissued by Intentia valued at $10.1 million, which includes accruedinterest of $0.1 million, as of August 31, 2005.

 

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***Full integration of ouroperations with Intentia’s operations may not be achieved if we cannotcompulsorily acquire all of the issued and outstanding Shares.***

*** ***

Our obligation to consummate the Exchange Offer issubject to a condition that, before the end of the Exchange Offer period, thereshall have been validly tendered and not properly withdrawn greater than 90% ofeach of the outstanding Shares (including Warrants) and voting power inIntentia on a fully diluted basis (including all shares issuable pursuant tooutstanding warrants but excluding shares issuable pursuant to outstandingconvertible securities). In addition, the compulsory acquisition proceedingsmay be time consuming.  To effect thecompulsory acquisition under Swedish law, we are required to have a beneficialinterest in greater than 90% of all of the voting power of the Intentiasecurities. It is possible that, at the end of the Exchange Offer period, wewill elect to waive the above condition and consummate the Exchange Offer if wehold at least 70% of the outstanding securities and voting power of Intentia,even though we do not hold more than 90% of the outstanding Intentiasecurities. As a result, we would not be able to effect a compulsoryacquisition of the remaining outstanding securities and voting power ofIntentia. This could prevent or delay us from realizing some or all of theanticipated financial and strategic benefits of our combination with Intentia.

 

***As a result of theconsummation of the Exchange Offer, we will conduct more of our businessinternationally, which will expose us to additional and increased risks.***

 

Although international revenues accounted forapproximately 5% of our total revenues during fiscal year 2005, we willsignificantly increase our international operations upon consummation of theExchange Offer, particularly in Europe. There are many risks that currentlyimpact, and will continue to impact our international business andmultinational operations, which risks will increase upon consummation of theExchange Offer.  These risks include thefollowing:

 

•                                          compliancewith multiple and potentially conflicting regulations in Europe, Asia and NorthAmerica, including export requirements, tariffs, import duties and other tradebarriers, as well as health and safety requirements;

 

•                                          potentiallabor strikes, lockouts, work slowdowns and work stoppages at U.S. andinternational ports;

 

•                                          differencesin intellectual property protections in Europe and Asia;

 

•                                          difficultiesin staffing and managing foreign operations in Europe and Asia;

 

•                                          restrictionson downsizing foreign operations in Europe and expenses and delays associatedwith any such activities;

 

•                                          longeraccounts receivable collection cycles in Europe and Asia;

 

•                                          currencyfluctuations and resulting losses on currency translations;

 

•                                          economicinstability, including inflation and interest rate fluctuations, such as thosepreviously seen in South Korea and Brazil;

 

•                                          competitionfor foreign-based suppliers in Asia and Europe;

 

•                                          overlappingor differing tax structures;

 

•                                          culturaland language differences among the United States, Europe and Asia; and

 

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•              politicalor civil turmoil.

 

Any failure on our part to manage these riskseffectively would seriously reduce our competitiveness in the businessapplications software marketplace.

 

***As a result of theconsummation of the Exchange Offer, we will be a larger and broaderorganization, and if our management is unable to manage the combination of ourbusiness with Intentia’s, our operating results will suffer.***

*** ***

***As a resultof the consummation of the Exchange Offer, we will acquire the worldwideoperations and approximately 2,300 employees of Intentia.  Consequently, we will face challengesinherent in efficiently managing an increased number of employees over largegeographic distances, including the need to implement appropriate systems,policies, benefits and compliance programs. In addition, we will be exposed to risks associated with the translationof Intentia’s SEK-denominated financial results and balance sheet into U.S.dollars. Our reporting currency will remain as the U.S. dollar; however, a portionof our consolidated financial obligations will arise in other currencies,including Euros, British Pounds and SEK. In addition, the carrying value ofsome of our assets and liabilities will be affected by fluctuations in thevalue of the U.S. dollar as compared to the Euro, British Pound and SEK.  Any inability to successfully manage thegeographically more diverse and substantially larger combined organization, orany significant delay in achieving successful management, could have a materialadverse effect on our results of operations after the Exchange Offer isconsummated and, as a result, on the market price of our common stock.***

 

***The new management teammight not be able to define or successfully implement a business plan for thecombined businesses.***

 

In June 2005, we appointed Harry Debes as our newpresident, chief executive officer, and director. Upon the completion of theExchange Offer, we will appoint a new co-chairman, Romesh Wadhwani, who iscurrently the chairman of the board of Intentia, and a new chief operatingofficer, Bertrand Sciard, the current president and chief executive officer ofIntentia. While Mr. Wadhwani, Mr. Debes and Mr. Sciard haveextensive experience in the software industry and managing software businessesand while Mr. Debes and Mr. Sciard have also managed large teams ofpeople at other U.S. software businesses neither, Mr. Debes norMr. Sciard has previously been chief executive or chief operating officerof a public company in the U.S. If this new management team is unable to adaptsuccessfully to the demands of managing a U.S. public company or to define orexecute our business plan, our results of operations may be adversely affected.

 

**Risks Relating to Lawson’s Business**

 

Our business and companywill continue to be subject to other risks and uncertainties, regardless ofwhether we complete the proposed business combination with Intentia.

 

***Economic, political and market conditions can adversely affect ourrevenue growth and operating results.***

 

Our revenue and profitabilitydepend on the overall demand for computer software, support and services,particularly in the industries in which we sell our products and services.Demand for enterprise software and demand for our solutions are affected bygeneral economic conditions, competition, product acceptance and technologylifecycles. Regional and global changes in the economy, governmental budgetdeficits and political instability in certain geographic areas have resulted inbusinesses, government agencies and educational institutions reducing theirspending for technology projects generally and delaying or reconsideringpotential purchases of our products and related services. The uncertainty posedby the long-term effects of the war in the Middle East, terrorist activitiesand related uncertainties and risks and other geopolitical issues may impactthe purchasing decisions of current or potential customers. Because of thesefactors, we believe the level of demand for our products and services, andprojections of future revenue and operating results, will continue to bedifficult to predict. During fiscal 2005 and the prior three fiscal years,we took measures to realign our projected expenses with anticipated revenue,and incurred restructuring charges for severance and related benefits, facilityclosure or consolidation charges. There is no assurance that these costreduction measures will be sufficient to offset any future revenue declines.Future declines in

 

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demandfor our products and/or services could adversely affect our revenues andoperating results.

 

***A number of our competitors are well-established software businessesthat have advantages over us.***

 

We face competition from anumber of software businesses that have advantages over us due to their larger customerbases, greater name recognition, long operating and product developmenthistory, greater international presence and substantially greater financial,technical and marketing resources. These competitors include well-established businessessuch as Oracle Corporation, and SAP AG, both of which have larger installed customerbases. If customers or prospects want to reduce the number of their softwarevendors, they may elect to purchase competing products from Oracle or SAP AGsince those larger vendors offer a wider range of products. Furthermore, Oracleis capable of bundling its software with its database applications, whichunderlie a significant portion of our installed applications. When we competewith Oracle or SAP AG for new customers, we believe that both of those larger businessesoften attempt to use their size and staying power as a competitive advantageagainst us. Oracle’s purchase of Peoplesoft, Inc., Retek Inc., SiebelSystems, and other consolidations in the software industry have fueleduncertainty among customer prospects.

 

Inaddition, we compete with a variety of more specialized software and servicesvendors, including:

 

•      Internet (on demand) software vendors;

 

•      single-industry software vendors;

 

•      emerging enterprise resource optimizationsoftware vendors;

 

•      human resource management software vendors;

 

•      financial management software vendors;

 

•      merchandising software vendors;

 

•      services automation software vendors; and

 

•      outsourced services providers.

 

As a result, the market forenterprise software applications has been and continues to be intenselycompetitive. Some competitors are increasingly aggressive with their pricing,payment terms and/or issuance of contractual warranties, implementation termsor guarantees. We may be unable to continue to compete successfully with newand existing competitors without lowering prices or offering other favorableterms to customers. We expect competition to persist and intensify, which couldnegatively impact our operating results and market share.

 

***Wemay be unable to retain or attract customers if we do not develop new productsand enhance our current products in response to technological changes andcompeting products.***

 

As a softwarecompany, we have been required to migrate our products and services frommainframe to client-server to web-based environments. In addition, we have beenrequired to adapt our products to emerging standards for operating systems,databases and other technologies. We will be unable to compete effectively ifwe are unable to:

 

•      maintain and enhance our technologicalcapabilities to correspond to these emerging environments and standards;

 

•      develop and market products and services thatmeet changing customer needs; or

 

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•      anticipate or respond to technologicalchanges on a cost-effective and timely basis.

 

A substantialportion of our research and development resources is devoted to productupgrades that address regulatory and support requirements. Only the remainderof our limited research and development resources is available for newproducts. New products require significant development investment. Thatinvestment is further constrained because of the added costs of developing newproducts that work with multiple operating systems or databases. We faceuncertainty when we develop or acquire new products because there is noassurance that a sufficient market will develop for those products.  If we do not attract sufficient customerinterest in those products, we will not realize a return on our investment andour operating results will be adversely affected.

 

Our coreproducts face competition from new or revised technologies that may render ourexisting technology less competitive or obsolete, reducing the demand for ourproducts. As a result, we must continually redesign our products to incorporatethese new technologies and to adapt our software products to operate on, andcomply with evolving industry standards for hardware and software platforms.Maintaining and upgrading our products to operate on multiple hardware anddatabase platforms reduces our resources for developing new products. Becauseof the increased costs of developing and supporting software products acrossmultiple platforms, we may need to reduce the number of those platforms.  In addition, conflicting new technologiespresent us with difficult choices of which new technologies to adopt. If wefail to anticipate the most popular platforms or fail to respond adequately totechnological developments, or experience significant delays in productdevelopment or introduction, our business and operating results will benegatively impacted.

 

InMay 2005, we announced that we intend to produce new software productsusing a business application platform we are developing, known as “Landmark.”The goals of Landmark are to simplify software development and improve productquality. Because we have not yet released any new products developed usingLandmark, it is too early to confirm whether we will successfully achieve thesegoals.

 

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

 

***Wemay need to change our pricing models to compete successfully.***

 

The intenselycompetitive markets in which we compete can put pressure on us to reduce ourprices. If our competitors offer deep discounts on certain products or servicesin an effort to recapture or gain market share or to sell other products orservices, we may need to lower prices or offer other favorable terms in orderto compete successfully. Any such changes would be likely to reduce margins andcould adversely affect operating results.

 

***If we are unable toattract and retain qualified personnel, specifically software engineers andsales personnel, we will be unable to develop new products and increase ourrevenue.***

 

We are experiencingincreased competition for attracting and retaining software engineers and salespersonnel. If we are unable to attract, train and retain highly-skilledtechnical, managerial, sales and marketing personnel, we may be at a competitivedisadvantage and unable to increase our revenue. Competition for personnel inthe software industry is intense, and at times, we have had difficulty locatingqualified candidates within desired geographic locations, or with certainindustry-specific domain expertise. The failure to attract, train, retain andeffectively manage employees could negatively impact our development and salesefforts and cause a degradation of our customer service. In particular, theloss of sales personnel could lead to lost sales opportunities because it cantake several months to hire and train replacement sales personnel. Uncertaintycreated by turnover of key employees could adversely affect our

 

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business,operating results and stock price.

 

***Ourearnings may be impacted by the recent accounting pronouncement requiringexpensing of equity instruments issued to employees.***

 

We currentlyaccount for the issuance of stock options under APB Opinion No. 25, *Accounting for Stock Issued to Employees*.The FASB has issued SFAS No. 123(R), *Share-BasedPayment* that changes the accounting treatment for grants of options,sale of shares under our employee stock purchase plan and other equityinstruments issued to employees. The provisions of SFAS No. 123(R) requireus to value equity instruments issued to employees and liability-classifiedawards at grant date fair value or based upon certain valuation methods thatapproximate grant date fair value, and to record those values as compensationexpense in our statement of operations. Upon the adoption of SFASNo. 123(R), the Company will determine whether it will continue to utilizethe Black-Scholes model or adopt some other acceptable model. We will berequired to expense all outstanding non-vested stock options as of June 1,2006 and stock options and other applicable equity instruments issued toemployees on or after June 1, 2006. Public entities will be required toapply SFAS No. 123(R) as of the first annual reporting period that beginsafter June 15, 2005, which is effective with the Company’s firstquarter of fiscal 2007. Due to the significant number of outstanding unvestedstock options anticipated as of June 1, 2006, we expect to incur materialcompensation expense after June 1, 2006 as those options vest or in theevent we decide to accelerate vesting. We may decide to change our stock basedcompensation plan strategy for future grants. This could affect our ability toretain existing employees and attract qualified candidates, and also couldincrease cash compensation. 

 

***Becauseour customers are concentrated in targeted service industries, our operatingresults may be adversely affected by adverse changes in one or more of theseindustries.***

 

As a result ofour focus on targeted service industries, our financial results depend, insignificant part, upon economic and market conditions in the healthcare,retail, government and education and financial services industries. Because thehealthcare marketplace for our products is maturing, we need to expand ourproduct offerings to achieve long-term revenue growth. Many state and localgovernments are facing budget shortfalls and are reducing capital spending,including spending on software and services. In addition, we must continue to developindustry specific functionality for our solutions, which satisfies thechanging, specialized requirements of prospective customers in our targetindustries. This need is becoming more prevalent as the marketplace for ourtraditional products is maturing.

 

***Wemay experience fluctuations in quarterly revenue that could adversely impactour stock price and our operating results.***

 

Our actualrevenues in a quarter could fall below expectations, which could lead to adecline in our stock price. Our revenues and operating results are difficult topredict and may fluctuate substantially from quarter-to-quarter. Revenues fromlicense fees in any quarter depend substantially upon our licensing activityand our ability to recognize revenues in that quarter in accordance with ourrevenue recognition policies. Our quarterly license and services revenue mayfluctuate and may be difficult to forecast for a variety of reasons, includingthe following:

 

•      a significant number of our existing andprospective customers’ decisions regarding whether to enter into licenseagreements with us are made within the last few weeks or days of each quarter;

 

•      we have historically had a higherconcentration of licensing activities in the second half of our fiscal year dueto the nature of our sales personnel compensation programs; however, thispattern was not as prominent in fiscal 2005 as in prior years and there is noassurance that this pattern will or will not continue in the future;

 

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•      the size of license transactions can varysignificantly;

 

•      a decrease in license fee revenue may likelyresult in a decrease in services revenue in the same or subsequent quarters;

 

•      customers may unexpectedly postpone or cancelprojects due to changes in their strategic priorities, project objectives,budget or personnel;

 

•      the uncertainty caused by potential businesscombinations in the software industry may cause customers and prospective customersto cancel, postpone or reduce capital spending projects on software;

 

•      customer evaluations and purchasing processesvary significantly from company to company, and a customer’s internal approvaland expenditure authorization process can be difficult and time consuming tocomplete, even after selection of a vendor;

 

•      the number, timing and significance ofsoftware product enhancements and new software product announcements;

 

•      existing customers may decline to renewsupport for our products, and market pressures may limit our ability toincrease support fees or require customers to upgrade from older versions ofour products;

 

•      prospective customers may decline or deferthe purchase of new products or releases if we do not have sufficient customer referencesfor those products; or

 

•      we may have to defer revenues under ourrevenue recognition policies.

 

Fluctuation inour quarterly revenues may adversely affect our operating results. In eachfiscal quarter our expense levels, operating costs and hiring plans are basedon projections of future revenues and are relatively fixed. If our actualrevenues fall below expectations we could experience a reduction in operatingresults.

 

***Ourlengthy and variable sales cycle makes it difficult to predict our operatingresults.***

 

It is difficultfor us to forecast the timing and recognition of revenues from sales of ourproducts because our existing and prospective customers often take significanttime evaluating our products before licensing them. The period between initialcustomer contact and a purchase by a customer may vary from nine months to morethan one year. During the evaluation period, prospective customers may decidenot to purchase or may scale down proposed orders of our products for variousreasons, including:

 

•      reduceddemand for enterprise software solutions;

 

•      introductionof products by our competitors;

 

•      lowerprices offered by our competitors;

 

•      changesin budgets and purchasing priorities; and

 

•      reducedneed to upgrade existing systems.

 

Our existing andprospective customers routinely require education regarding the use andbenefits of our products.  This may alsolead to delays in receiving customers’ orders.

 

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***Our future revenue is dependent in part on our installed customerbase continuing to renew support agreements, license additional products, andpurchase additional professional services.***

 

Our installedclient base has traditionally generated additional support, license orprofessional service revenues. In future periods, customers may not necessarilymake these purchases. Support is generally renewable annually at a customer’s option,and there are no mandatory payment obligations or obligations to licenseadditional software. If our customers decide not to renew their support agreementsor license additional products or contract for additional services or if theyreduce the scope of the support agreements, our revenues could decrease and ouroperating results could be adversely affected. If we do not license ourproducts to enough customers each quarter to offset the number of existing customerswho elect not to renew support, our total customer count will decline and, overtime, our support revenue will likely decrease.

 

***A reduction in our licensingactivity may result in reduced services revenues in future periods.***

 

Our ability to maintain orincrease service revenue primarily depends on our ability to increase thenumber of our licensing agreements. Variances or slowdowns in licensingactivity may adversely impact our consulting, training and support servicerevenues in future periods.

 

***The interplay between Lawson’srevenue and cost structure may negatively effect its earnings on a short termbasis.***

 

A significant part of Lawson’stotal cost base is attributed to fixed costs related to personnel.  While Lawson’s license sales generate asubstantial gross margin, reductions in license sales in the short term mayhave a substantial effect on earnings due to the fact that cost adjustments inthe organization will not occur as quickly as the accompanying changes inrevenue.

 

***While we believe we currently have adequate internal control overfinancial reporting, we are required to evaluate on a continued basis ourinternal control over financial reporting under Section 404 of theSarbanes-Oxley Act of 2002 and any adverse results from such evaluation couldhave a negative market reaction.***

 

Pursuant to Section 404of the Sarbanes-Oxley Act of 2002 (Section 404), beginning with our AnnualReport on Form 10-K for the fiscal year ended May 31, 2005, we wererequired to furnish a report by our management on our internal control overfinancial reporting. That report contained, among other matters, an assessmentof the effectiveness of our internal control over financial reporting as of theend of the fiscal year, including a statement that our internal control overfinancial reporting was effective. This assessment included disclosure that theCompany did not have any material weaknesses in our internal control overfinancial reporting identified by management. That report also contained a statement that our independent registeredpublic accounting firm had issued an attestation report on management’sassessment of such internal controls. If in the future we are unable to assertthat our internal control over financial reporting is effective as of the endof the then current fiscal year or applicable quarter (or, if our independentregistered public accounting firm is unable to attest that our management’sreport is fairly stated or they are unable to express an opinion on theeffectiveness of our internal controls), we could lose investor confidence inthe accuracy and completeness of our financial reports, which would have anegative market reaction.

 

***Wemay be required to delay revenue recognition into future periods, which couldadversely impact our operating results.***

 

We have in thepast had to, and in the future may have to, defer revenue recognition forlicense fees due to several factors, including the following situations:

 

•      the license agreements include applicationsthat are under development or have other undelivered elements;

 

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•      we must deliver services, includingsignificant modifications, customization or complex interfaces, which coulddelay product delivery or acceptance;

 

•      the transaction includes acceptance criteria;

 

•      the transaction includes contingent paymentterms or fees;

 

•      a third-party vendor, whose technology isincorporated into our software products, delays delivery of the final softwareproduct to the customer;

 

•      we are required to accept a fixed-feeservices contract; or

 

•      we are required to accept extended paymentterms of more than one year or for which we do not have adequate support ofhistorical collectibility.

 

Because of the factorslisted above and other specific requirements under accounting principlesgenerally accepted in the United States for software revenue recognition, wemust have very precise terms in our license agreements to recognize revenuewhen we initially deliver software or perform services. Negotiation of mutuallyacceptable terms and conditions can extend the sales cycle, and sometimes we donot obtain terms and conditions that permit revenue recognition at the time ofdelivery or even as work on the project is completed.  Furthermore, because many contracts withinour verticals, including government and education and healthcare, often includethe terms summarized above, the contracts result in revenue deferrals.

 

If accountinginterpretations relating to revenue recognition change, our reported revenuescould decline or we could be forced to make changes in our business practices.The accounting profession and regulatory agencies continue to address anddiscuss accounting standards and interpretations covering revenue recognitionfor the software industry with the objective of providing additional guidanceon their application. These discussions and the issuance of newinterpretations, once finalized, could lead to unanticipated reductions in ourrecognized revenue. They could also drive significant adjustments to ourbusiness practices which could result in increased administrative costs,lengthened sales cycles and other changes which could adversely affect ourreported revenues and results of operations.

 

***Futureadjustments in our net deferred tax assets may be materially adverse to ourfinancial results.***

 

On August 31, 2005,the consolidated balance sheet includes net deferred tax assets in the amountof $30.6 million. Each quarter, we must assess the likelihood that our netdeferred tax assets will be recovered from future taxable income and to theextent we believe that recovery is not likely, we must establish a valuationallowance. To the extent we establish a valuation allowance, we must include anexpense within the tax provision in the statement of operations.  For the fiscal year ended May 31, 2005,we updated our analysis to reflect the necessary changes in estimates anddetermined that an additional valuation allowance of $0.4 million wasnecessary. This increase was primarily due to additional federal contributioncarryforwards and state operating loss carryforwards that expire within thenext ten years.  As of August 31, 2005 wedetermined that our valuation allowance did not need to be adjusted.

 

Inthe event that we adjust our estimates of future taxable income or taxdeductions from the exercise of stock options; or our stock price increasessignificantly without a corresponding increase in taxable income, we may needto establish an additional valuation allowance, which could materiallyadversely impact our financial position and results of operations. With theexpected closing of the merger with Intentia we will need to reassess thecombined U.S. historical results for Lawson and Intentia as well as thecombined U.S. deferred tax assets. Intentia’s U.S. operations are not material and therefore its deferredtax assets are significantly less than Lawson’s.  However, Intentia’s historical losses in theU.S. and its added deferred tax assets will impact the assessment and areexpected to increase the possibility of a future valuation allowance.

 

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***We may experience fluctuations in quarterly results that couldadversely impact our annual effective tax rate.***

 

Ourrevenues and operating results are difficult to predict and may fluctuatesubstantially from quarter-to-quarter. Since we must estimate our annual effective tax rate each quarter basedon a combination of actual results and forecasted results of subsequentquarters, any significant change in our actual quarterly or forecasted annualresults may adversely impact the computation of the estimated effective taxrate for the year.  Our estimated annualeffective tax rate may fluctuate for a variety of reasons, including thefollowing:

 

•      changes in forecasted annual operatingincome;

 

•      changes to the valuation allowance on netdeferred tax assets;

 

•      changes to actual or forecasted permanentdifferences between book and tax reporting;

 

•      impacts from future tax settlements withstate, federal or foreign tax authorities; or

 

•      impacts from tax law changes.

 

***Ourstock price may remain volatile.***

 

Thetrading price of our common stock has fluctuated significantly in the past.Changes in our business operations or prospects, regulatory considerations,general market and economic conditions, or other factors may affect the priceof our common stock. Many of these factors are beyond our control. The futuretrading price of our common stock is likely to be volatile and could be subjectto wide price fluctuations in response to such factors, including:

 

•      actual or anticipated fluctuations inrevenues or operating results, including revenue or results of operations inany quarter failing to meet the expectations, published or otherwise, of theinvestment community;

 

•      announcements of technological innovations byus or our competitors;

 

•      developments with respect to our intellectualproperty rights, including patents, or those of our competitors;

 

•      fluctuations in demand for and sales of ourproducts, which will depend on, among other things, the acceptance of ourproducts in the marketplace and the general level of spending in the softwareindustry;

 

•      rumors or dissemination of false and/or misleadinginformation;

 

•      changes in management;

 

•      proposed and completed acquisitions or othersignificant transactions by us or our competitors;

 

•      introduction and success of new products orsignificant customer wins or losses by us or our competitors;

 

•      the mix of products and services sold by us;

 

•      the timing of significant orders by our customers;

 

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•      conditions and trends in the softwareindustry, or consolidation within the technology industry that may impact our customers,partners, suppliers or competitors;

 

•      adoption of new accounting standardsaffecting the software industry;

 

•      acts of war or terrorism; and

 

•      general market conditions.

 

***Wehave adopted anti-takeover defenses that could make it difficult for anothercompany to acquire control of Lawson or limit the price investors might bewilling to pay for our stock.***

 

Provisions in our amendedand restated certificate of incorporation and bylaws, our stockholder rightsplan and under Delaware law could make it more difficult for other businessesto acquire us, even if doing so would benefit our stockholders.  Our amended and restated certificate ofincorporation and bylaws contain the following provisions, among others, whichmay inhibit an acquisition of our company by a third-party:

 

•         advance notification procedures for mattersto be brought before stockholder meetings;

 

•         a limitation on who may call stockholdermeetings;

 

•         a prohibition on stockholder action bywritten consent; and

 

•         the ability of our board of directors toissue shares of preferred stock without a stockholder vote.

 

The issuance of stock underour stockholder rights plan could delay, deter or prevent a takeover attemptthat stockholders might consider in their best interests. We are also subjectto provisions of Delaware law that prohibit us from engaging in any businesscombination with any “interested stockholder,” meaning generally that astockholder who beneficially owns more than 15% of our stock cannot acquire usfor a period of three years from the date this person became an interestedstockholder unless various conditions are met, such as approval of thetransaction by our board of directors. Any of these restrictions could have theeffect of delaying or preventing a change in control.

 

***Changesin the terms on which we license technologies from third-party vendors couldresult in the loss of potential revenues or increased costs or delays in theproduction and improvement of our products.***

 

We license third-party softwareproducts that we incorporate into, or resell with, our own software products.For example, we incorporate Micro Focus International, Inc.’s software inmany of our products and have reseller relationships with IBM, BusinessSoftware Incorporated, Business Objects, Hyperion Solutions Corporationand other businesses that allow us to resell their technology with ourproducts. These licenses and other technology licenses are subject to periodicrenewal and may include minimum sales requirements. A failure to renew or earlytermination of these licenses or other technology licenses could adverselyimpact our business. If any of the third-party software vendors change theirproduct offerings or terminate our licenses, we may lose potential revenues andmay need to incur additional development costs and seek alternative third-partyrelationships. In addition, if the cost of licensing any of these third-partysoftware products significantly increases, or if there is a change in therelative mix of products we offer, our gross profits could significantlydecrease. We rely on existing relationships with software vendors who are alsocompetitors. If these vendors change their business practices, we may becompelled to find alternative vendors with complementary software, which maynot be available on attractive terms or at all, or may not be as widelyaccepted or as effective as the software provided by our existing vendors. Ourrelationships with these and other third-party vendors are an important part ofour business and a deterioration of these

 

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relationshipscould adversely impact our business and operating results.

 

***Adeterioration in our relationship with resellers, systems integrators and otherthird parties that market and sell our products could reduce our revenues.***

 

Our ability to achieverevenue growth will depend in large part on adding new partners to expand oursales channels, as well as leveraging our relationships with existing partners.If our relationships with these resellers, system integrators and strategic andtechnology partners deteriorate or terminate, we may lose important sales andmarketing opportunities. Our reseller arrangements may from time to time giverise to disputes regarding marketing strategy, sales of competing products,exclusive territories, payment of fees and customer relationships, which couldnegatively affect our business or result in costly litigation.

 

Our current and potential customersoften rely on third-party systems integrators to implement and manage new andexisting applications. These systems integrators may increase their promotionof competing enterprise software applications, or may otherwise discontinuetheir relationships with us.

 

We also may enter into jointarrangements with strategic partners to develop new software products orextensions, sell our software as part of integrated products or serve as anapplication service provider for our products. Our business may be adverselyaffected if these strategic partners change their business priorities orexperience difficulties in their operations, which in either case causes themto terminate or reduce their support for the joint arrangements. Furthermore,the financial condition of our channel partners impacts our business. If ourpartners are unable to recruit and adequately train a sufficient number ofconsulting personnel to support the implementation of our software products, orthey otherwise do not adequately perform implementation services, we may lose customers.Our relationships with resellers, systems integrators and other third-partyvendors are an important part of our business, and a deterioration of theserelationships could adversely impact our business and operating results.

 

***Ourprograms are deployed in large and complex systems and may contain defects thatare not detected until after our programs have been installed, which coulddamage our reputation and cause us to lose customers or incur liabilities.***

 

Our software programs areoften deployed in large and complex computer networks. Because of the nature ofthese programs, they can only be fully tested for reliability when deployed innetworks for long periods of time. Our software programs may contain undetecteddefects when first introduced or as new versions are released, and our customersmay discover defects in our products, experience corruption of their data orencounter performance or scaling problems only after our software programs havebeen deployed. As a consequence, from time to time we have received customercomplaints following installation of our products. We are currently a defendantin several lawsuits where customers have raised these types of issues with ourproducts and services. In addition, our products are combined with productsfrom other vendors. As a result, should problems occur, it may be difficult toidentify the source of the problem. Software and data security are becomingincreasingly important because of regulatory restrictions on data privacy andthe significant legal exposures and business disruptions stemming from computerviruses and other unauthorized entry or use of computer systems. Theseconditions increase the risk that we could experience, among other things:

 

•      loss of customers;

 

•      damage to our brand reputation;

 

•      failure to attract new customers or achievemarket acceptance;

 

•      diversion of development and servicesresources; and

 

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•      legal actions by our customers or governmentregulators.

 

In addition, we may not beable to avoid or limit liability for disputes relating to product performance,software security or the provision of services. The occurrence of any one ormore of the foregoing factors could cause us to experience losses, incurliabilities and adversely affect our operating results.

 

***Ifour customers lose confidence in the security of data on the Internet, ourrevenues could be adversely affected.***

 

Maintaining the security ofcomputers and computer networks is an issue of critical importance for our customers.Attempts by experienced computer programmers, or hackers, to penetrate clientnetwork security or the security of web sites to misappropriate confidentialinformation are currently an industry-wide phenomenon that affects computersand networks across all platforms. Despite efforts to address these risks,actual or perceived security vulnerabilities in our products (or the Internetin general) could lead some customers to seek to reduce or delay futurepurchases or to purchase competitors’ products which are not Internet-basedapplications. Customers may also increase their spending to protect theircomputer networks from attack, which could delay adoption of new technologies.Any of these actions by customers could adversely affect our revenues.

 

***We may be required to undertake a costly redesign of our products ifthird- party software development tools become an industry standard or causeobsolescence of our toolsets.***

 

Several businesses havefocused on providing software development tools and each of them is attemptingto establish its own tools as the accepted industry standard. If a softwareproduct were to emerge as a clearly established and widely accepted industrystandard or if rising expectations of toolsets of applications cause ourtoolsets to become obsolete, we may not be able to adapt our toolsappropriately or rapidly enough to satisfy market demand. In addition, we couldbe forced to abandon or modify our tools or to redesign our software productsto accommodate the new industry standard. This would be expensive andtime-consuming and may adversely affect results of operations and the financialcondition of our business. Our failure to drive or adapt to new and changingindustry standards or third-party interfaces could adversely affect sales ofour products and services.

 

***Wemay be unable to identify or complete suitable acquisitions and investments;and any acquisitions and investments we do complete may create businessdifficulties or dilute our stockholders.***

 

As part of our businessstrategy, we intend to pursue strategic acquisitions. We may be unable toidentify suitable acquisitions or investment candidates. Even if we identifysuitable candidates, we cannot provide assurance that we will be able to makeacquisitions or investments on commercially acceptable terms. If we acquire acompany, we may incur losses in the operations of that company and we may havedifficulty integrating its products, personnel and operations into ourbusiness. In addition, its key personnel may decide not to work for us. We mayalso have difficulty integrating acquired businesses, products, services andtechnologies into our operations. These difficulties could disrupt our ongoingbusiness, distract our management and workforce, increase our expenses andadversely affect our operating results. We may also incorrectly judge the valueor worth of an acquired company or business. Furthermore, we may incursignificant debt or be required to issue equity securities to pay for futureacquisitions or investments. The issuance of equity securities may be dilutiveto our stockholders. If the products of an acquired company are not successful,those remaining assets could become impaired, which may result in an impairmentloss that could materially adversely impact our financial position and resultsof operations.

 

***Wecurrently do not compete in the software “on demand” or application serviceprovider markets.***

 

Some businesses choose toaccess enterprise software applications through hosted “on demand” services orapplication service providers who distribute enterprise software through ahosted subscription service. We do not currently have our own “on demand”hosting program for our products and have had limited success with channelpartners who serve as application service providers for customers. If these

 

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alternativedistribution models gain popularity, we may not be able to compete effectivelyin this environment.

 

***Inthe event our products infringe on the intellectual property rights of thirdparties, our business may suffer if we are sued for infringement or cannotobtain licenses to these rights on commercially acceptable terms.***

 

We are subject to the riskof adverse claims and litigation alleging infringement by us of theintellectual property rights of others. Many participants in the technologyindustry have an increasing number of patents and patent applications and havefrequently demonstrated a readiness to take legal action based on allegations ofpatent and other intellectual property infringement. Further, as the number andfunctionality of our products increase, we believe that we may becomeincreasingly subject to the risk of infringement claims. If infringement claimsare brought against us, these assertions could distract management and we mayhave to expend potentially significant funds and resources to defend or settlesuch claims. If we are found to infringe on the intellectual property rights ofothers, we could be forced to pay significant license fees or damages forinfringement.

 

Ifone of our developers embedded open source components into one of our products,without our knowledge or authorization, our ownership and licensing of thatproduct could be in jeopardy.  Dependingon the open source license terms, the use of an open source component couldmean that all products delivered with that open source component become part ofthe open source community.  In that case,we would not own those delivered products and could not charge license fees forthose products.  We currently take stepsto train our developers and monitor the content of products in development, butthere is no assurance that these steps will always be effective.

 

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

 

***If the open sourcecommunity expands into enterprise application software, our license feerevenues may decline.***

 

The open source community iscomprised of many different formal and informal groups of software developersand individuals who have created a wide variety of software and have made thatsoftware available for use, distribution and modification, often free ofcharge. Open source software, such as the Linux operating system, has beengaining in popularity among business users. If developers contribute enterpriseapplication software to the open source community, and that software hascompetitive features and scale to support business users in our markets, wewill need to change our product pricing and distribution strategy to compete.

 

***Itmay become increasingly expensive to obtain and maintain liability insurance.***

 

We contract for insurance tocover several, but not all, potential risks and liabilities. In the currentmarket, insurance coverage is becoming more restrictive, and, when insurancecoverage is offered, the deductible for which we are responsible is larger. Inlight of these circumstances, it may become more difficult to maintaininsurance coverage at historical levels, or if such coverage is available, thecost to obtain or maintain it may increase substantially. This may result inour being forced to bear the burden of an increased portion of risks for whichwe have traditionally been covered by insurance, which could negatively impactour results of operations.

 

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***Wehave limited protection of our intellectual property and, if we fail toadequately protect our intellectual property, we may not be able to compete.***

 

We consider certain aspectsof our internal operations, software and documentation to be proprietary, andrely on a combination of contract, copyright, trademark and trade secret lawsto protect this information. In addition, to date, we hold one patent and havefiled several patent applications. Outstanding applications may not result inissued patents and, even if issued, the patents may not provide any competitiveadvantage. Existing copyright laws afford only limited protection. Ourcompetitors may independently develop technologies that are less expensive orbetter than our technology. In addition, when we license our products to customers,we provide source code for many of our products. We may also permit customersto obtain access to our other source code through a source code escrowarrangement. This access to our source code may increase the likelihood ofmisappropriation or other misuse of our intellectual property. In addition, thelaws of some countries in which our software products are or may be licensed donot protect our software products and intellectual property rights to the sameextent as the laws of the United States. Defending our rights could be costly.

 

***Businessdisruptions may interfere with our ability to conduct business.***

 

Business disruptions couldaffect our future operating results. Our operating results and financialcondition could be adversely affected in the event of a security breach, majorfire, war, terrorist attack or other catastrophic event. Impaired access orsignificant damage to our data center at our headquarters in St. Paul,Minnesota due to such an event could cause a disruption of our information,research and development, and customer support systems and loss of financial dataand certain customer data, which could adversely impact results of operationsand business financial conditions.

 

***We have limited experience with offshore outsourcing.***

 

To help improve margins andgain operational efficiencies, many software businesses have outsourcedportions of their software development and software services to businesseslocated in India or other parts of the world. In February 2004, we enteredinto an offshore agreement with a third-party based in India to provide certainsoftware support services for our products. We have recently expanded ourefforts to use this third-party to assist us in providing lower costimplementation services for customers. We have limited experience with thesetypes of outsourcing and may be unable to achieve the anticipated economicefficiencies expected****of thisarrangement.

 

***There are a large number of shares that may be sold in the market,which may depress our stock price.***

 

A substantial number ofshares of our common stock are held by our founders, their family members, apre-initial public offering investor, current or former employees, officers ordirectors. Sale of a portion of these shares in the public market, or theperception that such sales are likely to occur, could depress the market price ofour common stock and could impair our ability to raise capital through the saleof additional equity securities.

 

***Controlby existing stockholders could significantly influence matters requiringstockholder approval.***

 

As of August 31, 2005, ourexecutive officers, directors, and affiliated entities, in the aggregate,beneficially owned 16.6% of our outstanding common stock. These stockholders,if acting together, would be able to significantly influence all mattersrequiring approval by stockholders, including the election of directors and theapproval of mergers or other business combinations.  Sale of a portion of these shares in thepublic market, or the perception that such sales are likely to occur, coulddepress the market price of our common stock and could impair our ability toraise capital through the sale of additional equity securities.  In

 

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addition,certain of our stockholders have agreed to irrevocable undertakings withIntentia International AB, under which those shareholders have given theirproxy to affiliates of Intentia to vote an aggregate of 34,967,320 of ourshares in favor of the proposed acquisition of Intentia.

 

***Financial outlook.***

 

From time totime in press releases and otherwise, we may publish forecasts or otherforward-looking statements regarding our future results, including estimatedrevenues or net earnings. Any forecast of our future performance reflectsvarious 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 otherfactors (including those described in this discussion), many of which arebeyond our control. As a result, we cannot provide assurance that ourperformance will be consistent with any management forecasts or that thevariation from such forecasts will not be material and adverse. Current andpotential stockholders are cautioned not to base their entire analysis of ourbusiness and prospects upon isolated predictions, but instead are encouraged toutilize our entire publicly available mix of historical and forward-lookinginformation, as well as other available information affecting us, our products andservices, and the software industry when evaluating our prospective results ofoperations.

 

**ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKETRISK**

 

Therewere no material changes in market risk for the Company in the period coveredby this report. See the Company’s Annual Report on Forms 10-K and 10-K/A forthe fiscal year ended May 31, 2005 for a discussion of market risk for theCompany.

 

**ITEM 4. CONTROLS AND PROCEDURES**

 

As required by Rule13a-15(b) under the Securities Exchange Act of 1934, as amended we conducted anevaluation under the supervision and with the participation of our management,including the Chief Executive Officer and the Chief Financial Officer, of theeffectiveness of our disclosure controls and procedures as of the end of theperiod covered by this report. Based on that evaluation, the Chief ExecutiveOfficer and the Chief Financial Officer concluded that our disclosure controlsand procedures are effective in ensuring that all information required to bedisclosed in reports that we file or submit under the Exchange Act is recorded,processed, summarized and reported within the time periods specified in theSecurities and Exchange Commission rules and forms. There was no change in ourinternal control over financial reporting that occurred during the most recentfiscal quarter that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.

 

**PART II. OTHER INFORMATION**

 

**ITEM 1. LEGAL PROCEEDINGS**

 

We are, and from time totime may become, involved in litigation in the normal course of businessconcerning our products and services. While the outcome of these claims cannotbe predicted with certainty, we do not believe that the outcome of any one ofthese legal matters will have a material adverse effect on our consolidatedfinancial position, results of operations or cash flows. However, depending onthe amount and the timing, an unfavorable resolution of some or all of thesematters could materially affect our future results of operations or cash flowsin a particular period.

 

**ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OFPROCEEDS**

 

(a)Unregistered Sales of Equity Securities

 

BetweenJune 1, 2005 and August 31, 2005 the Company issued 144,208 common shares pursuantto the exercise of an outstanding stock warrant in reliance upon Rule 144(k) ofthe Securities Act of 1933 as amended.

 

46

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(b)Use of Proceeds

 

As ofAugust 31, 2005, we held $114.5 million of net proceeds from ourinitial public offering in interest-bearing, investment grade securities.During the three months ended August 31, 2005, we used approximately $0.4million for capital expenditures and $1.0 million for the repayment of debt.

 

**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**

 
| (a)    |   | Exhibits |
|--------|--------|----------|
|   |   |     |
|   |   |     |
|   |   | 10.5     | Modified Master Relationship Agreement and an OEM  Software Agreement between Lawson Software, Inc. and International Business  Machines Corporation. |
|   |   |     |   |
|   |   | 10.18    | Form of Stock Option Agreement under 2001 Stock  Incentive Plan. |
|   |   |     |   |
|   |   | 10.19    | Form of Stock Option Agreement under 2001 Stock  Option Incentive Plan (with additional terms regarding acceleration of  vesting). |
|   |   |     |   |
|   |   | 31.1     | Certification Pursuant to Section 302 of the  Sarbanes-Oxley Act Harry Debes. |
|   |   |     |   |
|   |   | 31.2     | Certification Pursuant to  Section 302 of the Sarbanes-Oxley Act- Robert G. Barbieri. |
|   |   |     |   |
|   |   | 32.1     | Certification Pursuant to  Section 906 of the Sarbanes-Oxley Act- Harry Debes. |
|   |   |     |   |
|   |   | 32.2     | Certification Pursuant to  Section 906 of the Sarbanes-Oxley Act- Robert G. Barbieri. |

 

47

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
| Date: October 10, 2005 |                       |
|-----------------------------|----------------------------|
|                        |                       |
|                        | LAWSON SOFTWARE, INC. |
|                        |                       |   |
|                        | By:                        | /s/ ROBERT G. BARBIERI |   |
|                        |                       | Robert G. Barbieri*Executive Vice President  and Chief Financial and Performance Officer*(principal financial and accounting officer) |

 

48

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**EXHIBIT INDEX**

 
| **EXHIBIT  NUMBER** | ** ** | **DESCRIPTION  OF DOCUMENTS**                                                                                                                         |
|---------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                  |
| 10.5                | (1)        | Modified Master  Relationship Agreement and an OEM Software Agreement between Lawson Software,  Inc. and International Business Machines Corporation. |
|                |       |                                                                                                                                                  |
| 10.18               | (2)        | Form of  Stock Option Agreement under 2001 Stock Incentive Plan.                                                                                 |
|                |       |                                                                                                                                                  |
| 10.19               | (2)        | Form of  Stock Option Agreement under 2001 Stock Incentive Plan (with additional terms  regarding acceleration of vesting).                      |
|                |       |                                                                                                                                                  |
| 31.1                | (3)        | Certification  Pursuant to Section 302 of the Sarbanes-Oxley Act- Harry Debes.                                                                   |
|                |       |                                                                                                                                                  |
| 31.2                | (3)        | Certification Pursuant to  Section 302 of the Sarbanes-Oxley Act- Robert G. Barbieri.                                                            |
|                |       |                                                                                                                                                  |
| 32.1                | (3)        | Certification Pursuant to  Section 906 of the Sarbanes-Oxley Act- Harry Debes.                                                                   |
|                |       |                                                                                                                                                  |
| 32.2                | (3)        | Certification Pursuant to  Section 906 of the Sarbanes-Oxley Act- Robert G. Barbieri.                                                            |

 

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(1)     Filed herewith. Confidentialinformation is omitted from this exhibit and filed separately with theSecurities and Exchange Commission accompanied by a confidential treatmentrequest pursuant to Rule 24b-2 under the securities Exchange Act of 1934,as amended.

 

(2)               Incorporated byreference to the Form 10-Q filed January 7, 2005

 

(3)               Filed herewith

 

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