----

----

**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 June 30, 2001** |
|                                              |
| **or**                                            |
|                                              |
| **o**                                             | **Transition  report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934** |

**Commissionfile number:       0-26994**

**ADVENT SOFTWARE, INC.**(Exact nameof Registrant as specified in its charter)

 
| **Delaware**                                                    | **94-2901952**                        |
|-----------------------------------------------------------------|---------------------------------------|
| (State or  other jurisdiction of incorporation or organization) | (IRS Employer  Identification Number) |

**301 BrannanStreet, San Francisco, California 94107**(Address ofprincipal executive offices and zip code)

**(415)543-7696**(Registrant’stelephone number, including area code)

 

             Indicate by check mark whether theRegistrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days.

Yesý   Noo

             The number of shares of theRegistrant’s Common Stock outstanding as of July 31, 2001 was 31,481,505.

----

----

 

**INDEX**

| **PART I.    FINANCIAL INFORMATION** |
|-----------------------------------------------------|
|                                                |
|                                                | **Item 1.** | **Financial Statements** |
|                                                |   |   |
|                                                | Condensed  Consolidated Balance Sheets |
|                                                |   |
|                                                | Condensed  Consolidated Statements of Income and Comprehensive Income |
|                                                |   |
|                                                | Condensed  Consolidated Statements of Cash Flows |
|                                                |   |
|                                                | Notes  to the Condensed Consolidated Financial Statements |
|                                                |   |
|                                                | **Item  2.** | **Management’s  Discussion and Analysis of Financial Condition and Results of Operations** |
|                                                |   |   |
|                                                | **Item  3.** | **Quantitative  and Qualitative Disclosures About Market Risk** |
|                                                |   |   |
| **PART II.    OTHER  INFORMATION**   |
|                                                |
|                                                | **Item 1.** | Legal Proceedings |
|                                                |   |   |
|                                                | **Item 2.** | Changes in  Securities and Use of Proceeds |
|                                                |   |   |
|                                                | **Item 3.** | Defaults  Upon Senior Securities |
|                                                |   |   |
|                                                | **Item  4.** | Submission  of Matters to a Vote of Security Holders |
|                                                |   |   |
|                                                | **Item 5.** | Other Information |
|                                                |   |   |
|                                                | **Item  6.** | Exhibits  and Reports on Form 8-K |
|                                                |   |   |
|                                                | **Signatures** |
|                                                     |  |  |  |  |  |

 

 

**PART I. FINANCIALINFORMATION**

**Item 1. FinancialStatements**

| **ADVENT SOFTWARE,  INC. CONDENSED CONSOLIDATED BALANCE  SHEETS** |
|-------------------------------------------------------------------|

 

|                                                                                               |                                       |       |                    |              |
|----------------------------------------------------------------------------------------------------|--------------------------------------------|------------|-------------------------|-------------------|
|                                                                                               | **June 30, 2001**                     |       | **December 31,   2000** | **   ** |
|                                                                                                    | ****                                       | ****       | ****                    |              |
| (in thousands)                                                                                     | (unaudited                                 | )          | (audited                | )                 |
|                                                                                               |                                       |       |                    |              |
| **ASSETS**                                                                                         |                                       | ** ** |                    | ** **        |
| Current assets:                                                                                    |                                       |       |                    |              |
|                                                                                               | Cash and cash equivalents                  | $          | 93,817                  |              | $ | 96,987 |   |
|                                                                                               | Short-term marketable securities           | 65,867     |                    | 55,445            |   |
|                                                                                               | Accounts receivable, net                   | 37,445     |                    | 35,710            |   |
|                                                                                               | Prepaid expenses and other                 | 7,267      |                    | 4,462             |   |
|                                                                                               | Deferred income taxes                      | 3,259      |                    | 3,259             |   |
|                                                                                               |                                            |       |                         |              |
|                                                                                               | Total current assets                       | 207,655    |                    | 195,863           |   |
|                                                                                               |                                            |       |                         |              |
| Fixed assets, net                                                                                  | 23,659                                     |       | 22,351                  |              |
| Other assets, net                                                                                  | 52,773                                     |       | 27,487                  |              |
|                                                                                               |                                            |       |                         |              |
|                                                                                               | Total assets                               | $          | 284,087                 |              | $ | 245,701 |   |
|                                                                                               |                                            |       |                         |              |
| **LIABILITIES AND  STOCKHOLDERS' EQUITY**                                                          |                                       | ** ** |                    | ** **        |
| Current liabilities:                                                                               |                                       |       |                    |              |
|                                                                                               | Accounts payable                           | $          | 1,061                   |              | $ | 855 |   |
|                                                                                               | Accrued liabilities                        | 9,330      |                    | 10,224            |   |
|                                                                                               | Deferred revenues                          | 24,000     |                    | 21,078            |   |
|                                                                                               | Income taxes payable                       | 8,269      |                    | 2,712             |   |
|                                                                                               |                                            |       |                         |              |
|                                                                                               | Total current liabilities                  | 42,660     |                    | 34,869            |   |
|                                                                                               |                                            |       |                         |              |
| Long-term liabilities:                                                                             |                                       |       |                    |              |
|                                                                                               | Other liabilities                          | 1,536      |                    | 1,231             |   |
|                                                                                               |                                            |       |                         |              |
|                                                                                               | Total liabilities                          | 44,196     |                    | 36,100            |   |
|                                                                                               |                                            |       |                         |              |
| Stockholders' equity:                                                                              |                                       |       |                    |              |
|                                                                                               | Common stock                               | 314        |                    | 305               |   |
|                                                                                               | Additional paid-in capital                 | 170,149    |                    | 154,070           |   |
|                                                                                               | Retained earnings                          | 69,398     |                    | 55,156            |   |
|                                                                                               | Cumulative other comprehensive income      | 30         |                    | 70                |   |
|                                                                                               |                                            |       |                         |              |
|                                                                                               | Total stockholders' equity                 | 239,891    |                    | 209,601           |   |
|                                                                                               |                                       |            |                    |                   |   |
|                                                                                               | Total liabilities and stockholders' equity | $          | 284,087                 |              | $ | 245,701 |   |
|                                                                                               |                                            |       |                         |              |
|                                                                                                    |
| The accompanying notes are an integral part of these condensed  consolidated financial statements. |
|                                                                                                    |                                            |            |                         |                   |  |  |  |  |

** **

 

 

| **ADVENT SOFTWARE, INC. CONDENSED CONSOLIDATED  STATEMENTS OF INCOME  AND COMPREHENSIVE INCOME** |
|-------------------------------------------------------------------------------------------------------|

 

|                                              |                                     |              |                           |              |     |              |     |              |
|---------------------------------------------------|------------------------------------------|-------------------|--------------------------------|-------------------|----------|-------------------|----------|-------------------|
|                                              | **Three Months  Ended June 30,**         | ** **        | **Six Months Ended  June 30,** | ** **        |
|                                              | ****                                     |              | ****                           |              |
|                                              | **2001**                                 | ** **        | **2000**                       | ** **        | **2001** | ** **        | **2000** | ** **        |
|                                                   | ****                                     | ****              | ****                           | ****              | ****     | ****              | ****     |              |
| (in thousands, except per share data)             | (unaudited)                              |              | (unaudited)                    |              |
|                                              |                                     |              |                           |              |     |              |     |              |
| Revenues:                                         |                                     |              |                           |              |     |              |     |              |
|                                              | License and development fees             | $                 | 20,596                         |              | $        | 15,375            |     | $                 | 37,682 |   | $ | 28,478 |   |
|                                              | Maintenance and other recurring          | 16,337            |                           | 12,338            |     | 31,275            |     | 23,221            |   |
|                                              | Professional services and other          | 5,003             |                           | 4,964             |     | 9,671             |     | 8,587             |   |
|                                              |                                          |              |                                |              |          |              |          |              |
|                                              | Net revenues                             | 41,936            |                           | 32,677            |     | 78,628            |     | 60,286            |   |
|                                              |                                          |              |                                |              |          |              |          |              |
| Cost of revenues:                                 |                                     |              |                           |              |     |              |     |              |
|                                              | License and development fees             | 1,642             |                           | 1,273             |     | 3,142             |     | 2,458             |   |
|                                              | Maintenance and other recurring          | 4,101             |                           | 3,259             |     | 7,982             |     | 6,369             |   |
|                                              | Professional services and other          | 1,549             |                           | 1,541             |     | 3,121             |     | 2,801             |   |
|                                              |                                          |              |                                |              |          |              |          |              |
|                                              | Total cost of revenues                   | 7,292             |                           | 6,073             |     | 14,245            |     | 11,628            |   |
|                                              |                                          |              |                                |              |          |              |          |              |
|                                              | Gross margin                             | 34,644            |                           | 26,604            |     | 64,383            |     | 48,658            |   |
|                                              |                                          |              |                                |              |          |              |          |              |
| Operating expenses:                               |                                     |              |                           |              |     |              |     |              |
|                                              | Sales and marketing                      | 12,903            |                           | 10,494            |     | 24,991            |     | 19,733            |   |
|                                              | Product development                      | 6,205             |                           | 5,561             |     | 12,131            |     | 10,485            |   |
|                                              | General and administrative               | 3,362             |                           | 2,976             |     | 6,891             |     | 5,911             |   |
|                                              | Amortization of intangibles              | 1,390             |                           | 382               |     | 2,055             |     | 764               |   |
|                                              |                                          |              |                                |              |          |              |          |              |
|                                              | Total operating expenses                 | 23,860            |                           | 19,413            |     | 46,068            |     | 36,893            |   |
|                                              |                                          |              |                                |              |          |              |          |              |
|                                              | Income from operations                   | 10,784            |                           | 7,191             |     | 18,315            |     | 11,765            |   |
|                                              | Interest and other income, net           | 1,645             |                           | 1,604             |     | 3,262             |     | 2,964             |   |
|                                              |                                          |              |                                |              |          |              |          |              |
|                                              | Income before income taxes               | 12,429            |                           | 8,795             |     | 21,577            |     | 14,729            |   |
|                                              | Provision for income taxes               | 4,225             |                           | 2,990             |     | 7,335             |     | 5,008             |   |
|                                              |                                          |              |                                |              |          |              |          |              |
|                                              | Net income                               | $                 | 8,204                          |              | $        | 5,805             |     | $                 | 14,242 |   | $ | 9,721 |   |
|                                              |                                          |              |                                |              |          |              |          |              |
| Other comprehensive income, net of tax            |                                     |              |                           |              |     |              |     |              |
|                                              | Unrealized loss on marketable securities | (139              | )                              | 0                 |     | (11               | )        | 0                 |   |
|                                              | Foreign currency translations adjustment | 30                |                           | (46               | )        | (29               | )        | (86               | ) |
|                                              |                                     |                   |                           |                   |     |                   |     |                   |   |
|                                              | Comprehensive income                     | $                 | 8,095                          |              | $        | 5,759             |     | $                 | 14,202 |   | $ | 9,635 |   |
|                                              |                                          |              |                                |              |          |              |          |              |
|                                              |                                     |              |                           |              |     |              |     |              |
| **NET INCOME   PER SHARE DATA Diluted** |                                     | **   ** |                           | **   ** |     | **   ** |     | **   ** |
| Net income per share                              | $                                        | 0.24              |                           | $                 | 0.17     |              | $        | 0.41              |   | $ | 0.29 |   |
| Shares used in per share calculations             | 34,719                                   |              | 34,103                         |              | 34,437   |              | 33,948   |              |
|                                              |                                     |              |                           |              |     |              |     |              |
| **Basic**                                         |                                     | ** **        |                           | ** **        |     | ** **        |     | ** **        |
| Net income per share                              | $                                        | 0.26              |                           | $                 | 0.19     |              | $        | 0.46              |   | $ | 0.33 |   |
| Shares used in per share calculations             | 31,160                                   |              | 29,882                         |              | 30,931   |              | 29,664   |              |
|                                                   |                                          |                   |                                |                   |          |                   |          |                   |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

| The accompanying notes are an integral part of these condensed  consolidated financial statements. |
|----------------------------------------------------------------------------------------------------|

 

| **ADVENT SOFTWARE, INC.CONDENSED CONSOLIDATED  STATEMENTS OF CASH FLOWS** |
|---------------------------------------------------------------------------|

 

|                                                                                                      | **Six Months Ended  June 30,**                                                     |       |
|-----------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------|------------|
|                                                                                                      | ****                                                                               | ** ** |
|                                                                                                      | **2001**                                                                           | ** ** | **2000** | ** ** |
|                                                                                                           | ****                                                                               | ****       | **** |   |
| (in thousands)                                                                                            | (unaudited                                                                         | )          |   |   |
|                                                                                                      |                                                                               |       |   |   |
| Cash flows from operating activities:                                                                     |                                                                               |       |   |   |
|                                                                                                      | Net income                                                                         | $          | 14,242 |   | $ | 9,721 |   |
|                                                                                                      | Adjustments to reconcile net income to net cash provided by  operating activities: |       |   |   |   |
|                                                                                                      | Non-cash stock compensation                                                        | 74         |   | - |   |
|                                                                                                      | Loss on disposal of assets                                                         | 23         |   | 10 |   |
|                                                                                                      | Depreciation and amortization                                                      | 4,653      |   | 2,933 |   |
|                                                                                                      | Provision for doubtful accounts                                                    | 2,362      |   | 955 |   |
|                                                                                                      | Deferred rent                                                                      | 305        |   | 149 |   |
|                                                                                                      | Cash provided by (used in) operating assets and liabilities:                       |       |   |   |   |
|                                                                                                      | Accounts receivable                                                                | (3,765     | ) | (2,900 | ) |
|                                                                                                      | Prepaid and other current assets                                                   | (2,549     | ) | 86 |   |
|                                                                                                      | Accounts payable                                                                   | 71         |   | 751 |   |
|                                                                                                      | Accrued liabilities                                                                | (929       | ) | 377 |   |
|                                                                                                      | Deferred revenues                                                                  | 940        |   | 2,070 |   |
|                                                                                                      | Income taxes payable                                                               | 5,540      |   | 1,654 |   |
|                                                                                                      |                                                                                    |       |  |   |
|                                                                                                      | Net cash provided by operating activities                                          | 20,967     |   | 15,806 |   |
|                                                                                                      |                                                                                    |       |  |   |
| Cash flows from investing activities:                                                                     |                                                                               |       |   |   |
|                                                                                                      | Acquisition of fixed assets                                                        | (3,724     | ) | (6,622 | ) |
|                                                                                                      | Purchases of other investments                                                     | (12,304    | ) | - |   |
|                                                                                                      | Net cash used in acquisition of NPO Solutions, Inc.                                | (6,726     | ) | - |   |
|                                                                                                      | Net cash used in acquisition of Rex Development Partners, L.P.                     | (8,455     | ) | - |   |
|                                                                                                      | Purchases of short-term marketable securities                                      | (31,278    | ) | - |   |
|                                                                                                      | Sales of short-term marketable securities                                          | 20,845     |   | - |   |
|                                                                                                      | Long-term prepaids                                                                 | -          |   | - |   |
|                                                                                                      | Long-term loan                                                                     | -          |   | - |   |
|                                                                                                      | Deposits and other                                                                 | 1,493      |   | (1,394 | ) |
|                                                                                                      |                                                                                    |       |  |   |
|                                                                                                      | Net cash used in investing activities                                              | (40,149    | ) | (8,016 | ) |
|                                                                                                      |                                                                                    |       |  |   |
| Cash flows from financing activities:                                                                     |                                                                               |       |   |   |
|                                                                                                      | Proceeds from issuance of common stock                                             | 11,013     |   | 7,092 |   |
|                                                                                                      | Proceeds from issuance of warrants                                                 | 5,000      |   | - |   |
|                                                                                                      |                                                                                    |       |  |   |
|                                                                                                      | Net cash provided by financing activities                                          | 16,013     |   | 7,092 |   |
|                                                                                                      |                                                                                    |       |  |   |
|                                                                                                      | Effect of exchange rate changes on cash and cash equivalents                       | (1         | ) | (54 | ) |
|                                                                                                      |                                                                                    |       |  |   |
| Net increase in cash and cash equivalents                                                                 | (3,170                                                                             | )          | 14,828 |   |
| Cash and cash equivalents at beginning of period                                                          | 96,987                                                                             |       | 64,315 |   |
|                                                                                                      |                                                                                    |       |  |   |
| Cash and cash equivalents at end of period                                                                | $                                                                                  | 93,817     |   | $ | 79,143 |   |
|                                                                                                      |                                                                                    |       |  |   |
| Supplemental disclosure of cash flow information:                                                         |                                                                               |       |   |   |
|                                                                                                      | Cash paid for income taxes                                                         | $          | 1,656 |   | $ | 3,256 |   |
|                                                                                                      | Unrealized loss on marketable securities                                           | $          | (11 | ) | $ | - |   |
|                                                                                                           |
| The accompanying notes are an integral part of these condensed  consolidated financial statements.   |                                                                               |
|                                                                                                           |                                                                                    |            |  |  |  |  |  |  |  |  |

 

 

 

**ADVENTSOFTWARE, INC.**

**NOTES TO THECONDENSED CONSOLIDATED FINANCIAL STATEMENTS****(Unaudited)**

**1. Basis of Presentation**

      The condensed consolidated financialstatements include the accounts of Advent Software, Inc. (“Advent”) and itswholly-owned subsidiaries. We have eliminated all significant intercompanybalances and transactions.

      We prepared the condensed consolidatedfinancial statements in accordance with the rules and regulations of theSecurities and Exchange Commission (“SEC”) applicable to interim financialinformation. Certain information and footnote disclosures included in financialstatements prepared in accordance with generally accepted accounting principleshave been omitted in these interim statements pursuant to such SEC rules andregulations. We recommend that these interim financial statements be read inconjunction with the audited financial statements and related notes included inour 2000 Annual Report on Form 10-K filed with the SEC. Interim results are notnecessarily indicative of the results to be expected for the full year.

      In our opinion, the condensedconsolidated financial statements include all adjustments necessary to presentfairly the financial position and results of operations for each interim periodshown.

**2.    Recent Accounting Pronouncements**

      InJuly 2001, the FASB issued two Statements; Statement No. 141,Business Combinations (SFAS No. 141), and Statement No. 142, Goodwilland Other Intangible Assets (SFAS No. 142). SFAS No. 141 revisesaccounting treatment for business combinations requiring the use of purchaseaccounting and prohibiting the use of pooling–of–interests methodfor all business combinations initiated after June 30, 2001. SFASNo. 142 revises the accounting for goodwill and other intangible assets bynot allowing amortization of goodwill and establishing accounting forimpairment of goodwill and other intangible assets. SFAS No. 142 will beeffective for fiscal years beginning after December 15, 2001 which is thebeginning of our fiscal year 2002. We have not yet evaluated the effects ofthese changes on our consolidated financial statements.

**3.    Acquisitions and Investments**

       On April 16, 2001, we acquired NPOSolutions, Inc. (“NPO”), a provider of integrated computer software solutionsfor nonprofit organizations, through our wholly-owned subsidiary MicroEdge,Inc.  NPO Solutions is a privately heldcompany based in Loudon, New Hampshire. We paid approximately $6.5 million forall the shares of NPO Solutions, with an additional $1.5 million to potentiallybe distributed to NPO stockholders if NPO meets certain milestones. This businesscombination was accounted for as a purchase and is recorded in Other assets,net on our Condensed Consolidated Balance Sheet.

       In April 2001, we joined withAccenture, Microsoft, Inc., Compaq Computer Corp., and the Bank of New York tocreate Encompys, an independent company that is developing an Internet–basedstraight–through–processing solution for the global assetmanagement community. We invested $8.8 million for an approximately 15%interest in this new venture, which has been accounted for using the costmethod and is recorded in Other assets, net on our Condensed ConsolidatedBalance Sheet.

       On January 31, 2001, we acquiredall outstanding capital stock of Rex Development Partners, L.P., a limitedpartnership, for approximately $8.5 million in cash. This businesscombination was accounted for as a purchase and the results of operations areincluded in our financial statements beginning on the acquisition date. As aresult, acquired technology of $8.5 million was recorded in connection withthis transaction and is being amortized over its estimated useful life of fiveyears and is recorded in Other assets, net on our Condensed ConsolidatedBalance Sheet.

**4.          Net Income Per Share**

 

|                                                                                                                                                                                           | **Three Months Ended June 30,** |                         | **Six Months Ended   June 30,** | ** **                   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------|------------------------------|---------------------------------|------------------------------|
| (in  thousands, except for per share data)                                                                                                                                                     | **2001**                             |                         | **2000**                        |                         | **2001** |   | **2000** | ** ** |
|                                                                                                                                                                                                |                                      |                              |                                 |                              |  |  |  |   |
| Net income                                                                                                                                                                                     | $                                    | 8,204                        |                            | $                            | 5,805 |   | $ | 14,242 |   | $ | 9,721 |   |
| **Reconciliation of shares used in basic and diluted per share  calculations**                                                                                                                 |                                 |                         |                            |                         |   |   |   |   |
|                                                                                                                                                                                           |                                 |                         |                            |                         |   |   |   |   |
| **Diluted**                                                                                                                                                                                    |                                 |                         |                            |                         |   |   |   |   |
| Weighted  average common shares outstanding                                                                                                                                                    | 31,160                               |                         | 29,882                          |                         | 30,931 |   | 29,664 |   |
| Dilutive  effect of stock options                                                                                                                                                              | 3,559                                |                         | 4,221                           |                         | 3,506 |   | 4,284 |   |
|                                                                                                                                                                                           |                                      |                         |                                 |                         |  |   |  |   |
| Shares  used in diluted net income per share calculation                                                                                                                                       | 34,719                               |                         | 34,103                          |                         | 34,437 |   | 33,948 |   |
|                                                                                                                                                                                           |                                      |                         |                                 |                         |  |   |  |   |
| Diluted  net income per share                                                                                                                                                                  | $                                    | 0.24                         |                            | $                            | 0.17 |   | $ | 0.41 |   | $ | 0.29 |   |
|                                                                                                                                                                                           |                                      |                         |                                 |                         |  |   |  |   |
| **Basic**                                                                                                                                                                                      |                                 |                         |                            |                         |   |   |   |   |
| Weighted  average common shares outstanding                                                                                                                                                    | 31,160                               |                         | 29,882                          |                         | 30,931 |   | 29,664 |   |
|                                                                                                                                                                                           |                                      |                         |                                 |                         |  |   |  |   |
| Shares  used in basic net income per share calculation                                                                                                                                         | 31,160                               |                         | 29,882                          |                         | 30,931 |   | 29,664 |   |
|                                                                                                                                                                                           |                                      |                         |                                 |                         |  |   |  |   |
| Basic net  income per share                                                                                                                                                                    | $                                    | 0.26                         |                            | $                            | 0.19 |   | $ | 0.46 |   | $ | 0.33 |   |
|                                                                                                                                                                                           |                                      |                         |                                 |                         |  |   |  |   |
| Weighted  Average Options and warrants outstanding at June 30, 2001 and 2000 not  included in computation of diluted EPS because the exercise price was greater  than the average market price | 579                                  |          | 123                             |          | 824 |          | 62 |          |
|                                                                                                                                                                                           |                                 |                         |                            |                         |   |   |   |   |
| Price  range of options not used in diluted EPS calculation                                                                                                                                    | $                                    | 56.88 - 60.38                |                            | $                            | 52.50 |   | $ | 52.50 - 60.38 |   | $ | 52.50 |   |
|                                                                                                                                                                                           |                                      |                         |                                 |                         |  |   |  |   |

 

**5.          Subsequent Events**

             On July 27, 2001 we filed aregistration statement with the Securities and Exchange Commission for theproposed public offering of 2,500,000 shares of common stock. The Companyintends to sell 2,300,000 shares in the offering and the balance of shares willbe sold by selling stockholders. The underwriters have an option to purchase upto an additional 375,000 shares of common stock from the Company solely tocover over-allotments.

 

**Item 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

**SPECIAL NOTEREGARDING FORWARD-LOOKING STATEMENTS**

             Youshould read the following discussion in conjunction with our consolidatedfinancial statements and related notes. Except for historical information, thefollowing discussion contains forward-looking statements within the meaning ofSection 27a of the Securities Act of 1933 and Section 21e of the SecuritiesExchange Act of 1934. These forward-looking statements involve risks anduncertainties, including, among other things, statements regarding ouranticipated product offerings, gross margins and operating costs and expenses.Our actual results may differ significantly from those projected in theforward-looking statements.  Factorsthat might cause future results to differ materially from those discussed inthe forward-looking statements include, but are not limited to, those discussedin “Management’s Discussion and Analysis of Financial Condition and Results ofOperations“, “Risk Factors and Forward-Looking Statements” and elsewhere inthis document as well as other information set forth in our Form S-3 filed July27, 2001 and in our Form 10-K for the year ended December 31, 2000, and otherdocuments we file from time to time with the Securities and Exchange Commission

 

***Results of Operations***

**REVENUES**

             Our net revenues are made up ofthree components: license and development fees, maintenance and otherrecurring, and professional services and other. Our net revenues for the secondquarter ended of 2001 increased 28% to $41.9 million, compared with netrevenues of $32.7 million for the same period in 2000. Net revenues for the sixmonths ended June 30, 2001 increased 30% to $78.6 million, compared with netrevenues of $60.3 million. These primarily reflect increases in license revenueand development fees as well as maintenance and other recurring revenue.

***             License revenue anddevelopment fees*****.**  License revenue and development fees for the second quarter of 2001increased 34% to $20.6 million compared with license revenue and developmentfees of $15.4 million for the second quarter of 2000. License revenue anddevelopment fees for the six months ended June 30, 2001 increased 32% to $37.7million, compared with $28.5 million from the same period last year. Theincrease in license revenue and development fees was primarily due to increasedrevenue from the Advent Office suite and Geneva product.

***             Maintenance and otherrecurring revenue*****.** Maintenance and other recurring revenue for the second quarter of 2001increased 32% to $16.3 million, compared with maintenance and other recurringrevenue of $12.3 million for the second quarter of 2000.  Maintenance and other recurring revenue forthe six months ended June 30, 2001 increased 35% to $31.3  million, compared with maintenance and otherrecurring revenue of $23.2 million for the same period last year. The increasewas due primarily to a larger client base and higher average maintenancefees.  Higher average maintenance feesare primarily due to clients selecting more components for a full feature,multi-product solution and clients expanding the number of users and siteslicensing our software.  Additionally,increased demand for pricing data from Hubdata and revenues from newly acquiredRex Development Partners, L.P. contributed to the increase in maintenance andother recurring revenues.

***             Professional servicesand other revenue*****.** Professional services and other revenue remained relatively constant at$5.0 million for both the second quarters of 2000 and 2001.  Professional services and other revenue forthe six months ended June 30, 2001 increased 13% to $9.7 million, compared with$8.6 million for the same period last year. The increase was primarily due tohigher product sales activity, which increased demand for our consultingservices and higher consulting fees from increasingly larger implementations atlarger financial institutions partially offset by the use of distributors andindependent consulting organizations, particularly in the second quarter of2001.

**COST OF REVENUES**

             Our cost of revenues is made up ofthree components: cost of license and development fees, cost of maintenance andother recurring and cost of professional services and other. Our cost ofrevenues for the second quarter of 2001 increased 20% to $7.3 million, comparedwith cost of revenues of $6.1 million for the second quarter of 2000.  Cost of revenues for the six months endedJune 30, 2001 increased 23% to $14.2 million, compared with $11.6 million forthe same period last year. Cost of revenues as a percentage of net revenuesdecreased to 17% for the three months ended June 30, 2001 from 19% from thesame period in 2000. Cost of revenues as a percentage of net revenues decreasedto 18% for the six months ended June 30, 2001, compared with 19% for the sameperiod last year.

***             Cost of license anddevelopment fees*****.** Cost of license and development fees increased 29% to $1.6 million inthe second quarter of 2001 from $1.3 million in the second quarter of 2000.Cost of license and development fees increased 28% to $3.1 million in the sixmonths ended June 30, 2001, compared with $2.5 million in the same period lastyear. The increase in cost of license and development fees is directly relatedto the increase in license and development fees revenue. Cost of license anddevelopment fees as a percentage of the related revenues remained relativelystable at 8% for the second quarter of 2001 compared to the same period in2000.  Cost of license and developmentfees as a percentage of the related revenues remained relatively stable at 8%and 9% for the six months ended June 30, 2001 and 2000, respectively.

***             Cost of maintenanceand other recurring revenues***.  Cost of maintenance andother recurring revenues increased 26% to $4.1 million for the second quarterof 2001 from $3.3 million for the second quarter of 2000. Cost of maintenanceand other recurring revenues increased 25% to $8.0 million for the six monthsended June 30, 2001, compared with $6.4 million for the same period last year.This increase was due to additional staffing required to support a largercustomer base and increased royalties paid to third party subscription-basedand transaction-based vendors. Cost of maintenance and other recurring revenuesas a percentage of the related revenues remained relatively stable at 25% and26% for the second quarter 2001 and 2000, respectively. Cost of maintenance andother recurring revenues as a percentage of the related revenues remainedrelatively stable at 26% and 27% for the six months ended June 30, 2001 and2000, respectively.

 

***             Cost of professionalservices and other revenue.*** Cost of professional services and other revenue remainedrelatively consistent at $1.5 million for both the three months ended June 30,2001 and June 30, 2000. Cost of professional services and other revenueincreased 11% to $3.1 million for the six months ended June 30, 2001 from $2.8million for the same period last year. The increase was primarily due to higherproduct sales activity, which increased demand for our consulting services andhigher consulting fees from increasingly larger implementations at largerfinancial institutions partially offset by the use of distributors andindependent consulting organizations. Cost of professional services and otherrevenue as a percentage of the related revenues remained relatively constant at31% in the second quarter of both 2001 and 2000. Cost of professional servicesand other revenue as a percentage of the related revenues remained relativelyconstant at 32% and 33% for the six months ended June 30, 2001, and June 30,2000, respectively.

**OPERATING EXPENSES**

***             Sales and Marketing*****.    **Our sales and marketing expenses forthe second quarter of 2001 increased 23% to $12.9 million, compared with $10.5million for the second quarter of 2000. Sales and marketing expenses for the six months ended June 30, 2001increased 27% to $25.0 million, compared with $19.7 million in the same periodlast year.  The increase in expense forthe three and six months ended June 30, 2001 compared with the same periodslast year was primarily due to an increase in sales and marketing personnel,increased sales and marketing in our core markets and our efforts towards ourinternet initiatives, including Advent TrustedNetwork. Sales and marketing expensesas a percentage of net revenues remained relatively stable at 31% and 32% forthe second quarter of 2001 and 2000, respectively. Sales and marketing expensesas a percentage of net revenues remained relatively stable at 32% and 33% forthe six months ended June 30, 2001 and 2000.

***             Product Development.*****    **Our product development expenses for the secondquarter of 2001 increased 12% to $6.2 million, compared with productdevelopment expenses of $5.6 million for the second quarter of 2000. Productdevelopment expenses for the six months ended June 30, 2001 increased 16% to$12.1 million, compared with $10.5 million in the same period last year.Product development expenses increased primarily due to growth in personnel aswe increased our product development efforts to accelerate the rate of productenhancements and new product introductions, such as Advent INXä. Product development expenses as apercentage of net revenues decreased to 15% for the second quarter 2001compared with 17% in the second quarter 2000. Product development expenses as a percentage of net revenues decreasedto 15% for the six months ended June 30, 2001, compared with 17% in the sameperiod last year. The decrease was primarily due to revenues increasing at afaster rate than expenses.

              ***General andAdministrative.    ***Ourgeneral and administrative expenses for the second quarter of 2001 increased13% to $3.4 million, compared with general and administrative expenses of $3.0million for the second quarter of 2000. General and administrative expensesincreased 17% to $6.9 million for the six months ended June 30, 2001, comparedwith $5.9 million in the same period last year.  The increase was due to increased staffing and related costs tosupport our growth. General and administrative expenses as a percentage of netrevenues decreased to 8% in the second quarter of 2001, compared with 9% in thesecond quarter of 2000. General and administrative expenses as a percentage ofnet revenues decreased to 9% in the six months ended June 30, 2001, comparedwith 10% in the same period last year. The decrease was primarily due toeconomies of scale as we are targeting efficiencies within this area of ourbusiness.

***             Interest and OtherIncome, Net.*****    **Interest and other income, net was$1.6 million in the second quarters of 2001 and 2000. Interest and otherincome, net was $3.3 million in the six months ended June 30, 2001, comparedwith $3.0 million in the same period last year. The increase was primarily dueto greater balances available for investments, partially offset by lower ratesof return.

***             Provision for IncomeTaxes.    ***For the three and six months endedJune 30, 2001 we recorded a tax provision of $4.2 million and $7.3 million,respectively, based on our pretax income using an effective tax rate of 34%,which is our anticipated effective tax rate for the fiscal year 2001. Theactual effective tax rate for the entire fiscal year could vary substantiallydepending on actual results achieved. We had an effective tax rate of 34% forfiscal 2000.

***Liquidityand Capital Resources***

             Our cash and cash equivalents atJune 30, 2001 were $93.8 million, decreasing by $3.2 million from $97.0 millionat December 31, 2000. The decrease was due to $40.1 million used in investingactivities, partially offset by $21.0 million generated by operating activitiesand $16.0 million provided by financing activities.

             The net cash of $21.0 millionprovided from operating activities for the six months ended June 30, 2001 wasprimarily due to net income and increases in income taxes payable as well asdepreciation and amortization, partially offset by increases in accountsreceivable and prepaid and other assets. Net cash used in investing activitiesof $40.1 million for the six months ended June 30, 2001 was primarily relatedto the net acquisition of short-term marketable securities, $8.8 millioninvestment in Encompys, $8.5 million acquisition of Rex Development Partners,L.P., $6.5 million acquisition of NPO Solutions, Inc. and $4.0 million investedin several strategic partners. Financing activities provided $16.0 million forthe six months ended June 30, 2001, primarily due to proceeds from exercises ofcommon stock options, our employee stock purchase plan and the issuance ofstock warrants.

             At June 30, 2001, we had $165.0million in working capital. We currently have no significant capitalcommitments other than commitments under our operating leases.  We believe that our available sources offunds and anticipated cash flows from operations will be adequate to financecurrent operations and anticipated capital expenditures through at least fiscal2001.

**Risk Factors**

**Our Operating Results Fluctuate Significantly and We May NotBe Able to Maintain Our Existing Growth Rates.**

             Licensesinto multi-user networked environments have increased both in individual sizeand number, and the timing and size of individual license transactions arebecoming increasingly important factors in quarterly operating results. Thesales cycles for these transactions are often lengthy and unpredictable. We maynot be successful in closing large license transactions such as these on atimely basis or at all. Accordingly, because revenues from large licenses areincreasing as a portion of our net revenues, the timing of such licenses could causeadditional variability in our quarterly operating results. Software productbacklog at the beginning of any quarter typically represents only a smallportion of that quarter's expected revenues. Our expense levels are based insignificant part on our expectations of future revenues and therefore arerelatively fixed in the short term. Due to the fixed nature of these expensescombined with the relatively high gross margin historically achieved by us onproducts and services, an unanticipated decline in net revenues in anyparticular quarter is likely to disproportionately adversely affect ouroperating results.

             Wehave generally realized lower revenues from license fees in the first quarterof the year than in the last quarter of the prior year. We believe that thishas been due primarily to the concentration by some clients of larger capitalpurchases in the fourth quarter of the calendar year and their lower purchasingactivity during the subsequent first quarter. We believe our annual incentivecompensation plans, which tend to produce increased year-end sales activity,compound this factor. Furthermore, we have often recognized a substantialportion of each quarter's license revenues in the last month, weeks or evendays of that quarter. As a result, the magnitude of quarterly fluctuations inrevenue or earnings may not be evident until late in or after the close of aparticular quarter.

             Becauseof the above factors, we believe that period-to-period comparisons of ouroperating results are not necessarily meaningful and that these comparisonscannot be relied upon as indicators of future performance.

             Ourstock price has fluctuated significantly since our initial public offering inNovember 1995. Like many companies in the technology and emerging growthsector, our stock price may be subject to wide fluctuations, particularlyduring times of high market volatility. If net revenues or earnings in anyquarter fail to meet the investment community's expectations, our stock priceis likely to decline. In addition, our stock price may be affected by broadermarket trends unrelated to our performance.

**Our Sales Cycle Is Long and We Have Limited Ability toForecast the Timing and Amount of Specific Sales.**

             Becausethe purchase of our software products often requires significant,executive-level investment and systems architecture decisions by prospectivecustomers, we must generally engage in a relatively lengthy sales effort. Thesetransactions may be delayed during the customer decision process because we mustprovide a significant level of education to prospective customers regarding theuse and benefit of our products. As a result, the sales cycle associated withthe purchase of our software products is typically between two and twelvemonths depending upon the size of the client, though it can be considerablylonger, and is subject to a number of significant risks over which we havelittle or no control, including customers' budgeting constraints and internalselection procedures, among other factors. As a result of a lengthy andunpredictable sales cycle, we have limited ability to forecast the timing andamount of specific sales. The timing of large individual sales is especiallydifficult to forecast. As a result, there can be no assurance that we will be successfulin closing large license transactions on a timely basis or at all. In addition,customers may postpone their purchases of our existing products or productenhancements in advance of the anticipated introduction of new products orproduct enhancements by us or our competitors. Because our expenses aregenerally relatively fixed in the near term, any shortfall from anticipatedrevenues could result in significant variations in our operating results fromquarter to quarter.

             Theimplementation of our solutions involves a significant commitment of resourcesby customers and by us and our service partners over an extended period oftime. Also, the size and complexity of any particular implementation projectcan cause delays in the sales cycle that precedes it. Any such delays couldseriously harm our business.

**We Depend Heavily on Our Product, Axys®.**

             In2000, 1999 and 1998, we derived a substantial majority of our net revenues fromthe licensing of Axys, part of our Advent Office suite, and related productsand services. In addition, many of our other products, such as Moxy®, Qube® andvarious data interfaces were designed to operate with Axys to provide anintegrated solution. As a result, we believe that a majority of our netrevenues, for the foreseeable future, will depend upon continued marketacceptance of Axys, enhancements or upgrades to Axys and related products andservices.

**We Are Continuing to Expand Our Internet Initiative.**

             Totake advantage of the Internet, we are continuing to expand an InternetInitiative under which we are developing services, both announced andunannounced, to bring Internet-based products and services to clients. Thefirst of these services, RexTM, was launched during the second quarter of 1997.The second service, Advent Browser Reporting®, was launched in the thirdquarter of 1998. During 2000 we announced a number of new products and serviceswhich take advantage of Internet technology, including Advent TrustedNetworksm,MyAdventTM, eActionsTM (through our Hub Data subsidiary), Internet-enabledenhancements to Gifts for Windows (through our MicroEdge® subsidiary) andAdvent Outsource, a service that delivers Advent Office functionality on asubscription basis. This year we introduced Advent INXTM, our newest componentof Advent Office, which enables investment managers to present portfolio dataon websites designed specifically for their clients. As we develop new productsand services under our Internet Initiative, we have and will continue to enterinto development agreements with information providers, clients or othercompanies in order to accelerate the delivery of new products and services. Wemay not be successful in marketing our Internet services or in developing otherInternet services. Our failure to do so could seriously harm our business. Inaddition, we cannot assure you that there will not be disruptions in Internetservices beyond our control or that of our third party vendors. Any suchdisruptions could harm our business.

**Security Risks and Concerns May Deter the Use of the Internetfor Conducting Business.**

             Asignificant barrier to commerce and communications over public networks is thesecure transmission of confidential information. Advances in computercapabilities, new discoveries in the field of cryptography or other events ordevelopments could result in compromises or breaches of our security systems orthose of other web sites to protect proprietary information. If anywell-publicized compromises of security were to occur, it could have the effectof substantially reducing the use of the Internet for commerce andcommunications. Anyone who circumvents our security measures could misappropriateproprietary information or cause interruptions in our services or operations.The Internet is a public network, and data is sent over this network from manysources. In the past, computer viruses, software programs that disable orimpair computers, have been distributed and have rapidly spread over theInternet. Computer viruses could be introduced into our systems or those of ourcustomers or other third parties, which could disrupt or make it inaccessibleto customers. We may be required to expend significant capital and otherresources to protect against the threat of security breaches or to alleviateproblems caused by breaches. To the extent that our activities may involve thestorage and transmission of proprietary information, security breaches couldexpose us to a risk of loss or litigation and possible liability. Our securitymeasures may be inadequate to prevent security breaches, and our business wouldbe harmed if we do not prevent them.

**We FaceRisks Related to Our New Business Areas.**

             Wehave expanded in recent periods into a number of new business areas to fosterlong-term growth including international operations, strategic alliances, andAdvent TrustedNetwork. These areas are relatively new to our productdevelopment and sales personnel. New business areas require significantmanagement time and resources prior to generating significant revenues and maydivert management from our core business. There is no assurance that we willcompete effectively or will generate significant revenues in these areas. Thesuccess of our Internet Initiative, in particular, is difficult to predictbecause it represents a new area of business for our entire industry.Additionally, to help manage our growth, we will need to continually improveour operational, financial, management and information systems and controls.

**We Expect Our Gross and Operating Margins May Fluctuate overTime.**

             Weexpect that our gross and operating margins may fluctuate from period to periodas we continue to introduce new products, expand our professional servicesorganization and associated revenue, continue to hire additional personnel andincrease other expenses to support our business. We plan our expense levelsbased primarily on forecasted revenue levels. Because these expenses arerelatively fixed in the short term, a fluctuation in revenue could lead tooperating results differing from expectations.

**We Must Continue to Introduce New Products and ProductEnhancements.**

             Themarket for our products is characterized by rapid technological change, changesin customer demands and evolving industry standards. As a result, our futuresuccess will continue to depend upon our ability to develop new products orproduct enhancements that address the future needs of our target markets and torespond to these changing standards and practices. We may not be successful indeveloping, introducing and marketing new products or product enhancements on atimely and cost effective basis, or at all, and our new products and productenhancements may not adequately meet the requirements of the marketplace orachieve market acceptance. Delays in the commencement of commercial shipmentsof new products or enhancements may result in client dissatisfaction and delayor loss of product revenues. If we are unable, for technological or otherreasons, to develop and introduce new products or enhancements of existingproducts in a timely manner in response to changing market conditions or clientrequirements, or if new products or new versions of existing products do notachieve market acceptance, our business would be seriously harmed. In addition,our ability to develop new products and product enhancements is dependent uponthe products of other software vendors, including certain system softwarevendors, such as Microsoft Corporation, database vendors and development toolvendors. If the products of such vendors have design defects or flaws, or ifsuch products are unexpectedly delayed in their introduction, our businesscould be seriously harmed. Software products as complex as those offered by usmay contain undetected defects or errors when first introduced or as newversions are released. Although we have not experienced adverse effectsresulting from any software errors, we cannot assure you that, despite testingby us and our clients, defects or errors will not be found in new productsafter commencement of commercial shipments, resulting in loss of or delay inmarket acceptance, which could seriously harm our business.

**We Depend upon Financial Markets.**

             Thetarget clients for our products include a range of organizations that manageinvestment portfolios, including investment advisors, brokerage firms, banksand hedge funds. In addition, we target corporations, public funds,universities and non-profit organizations, which also manage investmentportfolios and have many of the same needs. The success of many of our clientsis intrinsically linked to the health of the financial markets. We believe thatdemand for our products could be disproportionately affected by fluctuations,disruptions, instability or downturns in the financial markets which may causeclients and potential clients to exit the industry or delay, cancel or reduceany planned expenditures for investment management systems and software products.In addition, a slowdown in formation of new investment firms or a decline inthe growth of assets under management would cause a decline in demand for ourproducts. Any resulting decline in demand for our products could have amaterial adverse effect on our business and results of operations.

**General Economic Conditions May Reduce Our Revenues.**

             Webelieve that the market for large management software systems may be negativelyimpacted by a number of factors, including:

             •            reductionsin capital expenditures by large customers;

             •            poorperformance of major financial markets; and

             •            increasingcompetition.

             Theabove factors may, in turn, give rise to a number of market trends that mayslow revenue growth across the industry, including:

             •            longersales cycles;

             •            deferralor delay of information technology projects and generally reduced expendituresfor software and related                           services; and

             •            increasedprice competition.

             Ifthe current economic slowdown continues, the presence of these factors in themarket for large management software systems could materially adversely affectour business and results of operations.

**If Our Relationship with Interactive Data Is Terminated, OurBusiness May Be Harmed.**

             Manyof our clients use our proprietary interface to electronically retrieve pricingand other data from Interactive Data. Interactive Data pays us a commissionbased on their revenues from providing this data to our clients. Our softwareproducts have been customized to be compatible with their system and thissoftware would need to be redesigned if their services were unavailable for anyreason. Termination of our agreement with Interactive Data would require atleast two years notice by either us or them, or 90 days in the case ofmaterial breach. If our relationship with Interactive Data were terminated ortheir services were unavailable to our clients for any reason, replacing theseservices could be costly and time consuming.

**We Face Intense Competition.**

             Themarket for investment management software is intensely competitive and highlyfragmented, subject to rapid change and highly sensitive to new productintroductions and marketing efforts by industry participants. Our competitorsinclude providers of software and related services as well as providers oftimeshare services.

             Ourcompetitors vary in size, scope of services offered and platforms supported. Inaddition, we compete indirectly with existing and potential clients, many ofwhom develop their own software for their particular needs and therefore may bereluctant to license software products offered by independent vendors like us.Many of our competitors have longer operating histories and greater financial,technical, sales and marketing resources than we do. In addition, we also facecompetition from potential new entrants into our market who may developinnovative technologies or business models. We cannot guarantee that we will beable to compete successfully against current and future competitors or thatcompetitive pressures will not result in price reductions, reduced operatingmargins and loss of market share, any one of which could seriously harm ourbusiness.

**We FaceChallenges in Expanding Our International Operations.**

             Wemarket and sell our products in the United States and, to a lesser extent,internationally. We have established a subsidiary located in Australia, AdventAustralia Pty. Ltd., to market and license our products in Australia. Inaddition, we entered into a distributor relationship in 1999 with AdventEurope, an independent distributor of our products in selected Europeanmarkets. In order to further expand our international operations, we would needto continue to establish additional facilities, acquire other businesses orenter into additional distribution relationships in other parts of the world.The expansion of our existing international operations and entry intoadditional international markets will require significant management attentionand financial resources. We cannot be certain that our investments in establishingfacilities in other countries will produce desired levels of revenue. Wecurrently have limited experience in developing localized versions of ourproducts and marketing and distributing our products internationally. Inaddition, international operations are subject to other inherent risks,including:

 

             •            Theimpact of recessions in economies outside the United States;

             •            Greaterdifficulty in accounts receivable collection and longer collection periods;

             •            Unexpectedchanges in regulatory requirements;

             •            Difficultiesin successfully adapting our products to the language, regulatory andtechnology standards of other                           countries;

             •            Difficultiesand costs of staffing and managing foreign operations;

             •            Reducedprotection for intellectual property rights in some countries;

             •            Potentiallyadverse tax consequences; and

             •            Politicaland economic instability.

             Ourinternational revenues are generally denominated in U.S. dollars, with theexception of our Australian subsidiary. The revenues, expenses, assets andliabilities of Advent Australia are primarily denominated in Australiandollars. We have not historically undertaken foreign exchange hedgingtransactions to cover potential foreign currency exposure. Future fluctuationsin currency exchange rates may adversely affect revenues from internationalsales and the U.S. dollar value of Advent Australia's revenues, expenses,assets and liabilities.

**Undetected Software Errors or Failures Found in New ProductsMay Result in Loss of or Delay in Market Acceptance of Our Products That CouldSeriously Harm Our Business.**

             Ourproducts may contain undetected software errors or failures when firstintroduced or as new versions are released. Despite testing by us and bycurrent and potential customers, errors may not be found in new products untilafter commencement of commercial shipments, resulting in loss of or a delay inmarket acceptance, which could seriously harm our business.

**If We Are Unable to Protect Our Intellectual Property We MayBe Subject to Increased Competition That Could Seriously Harm Our Business.**

             Oursuccess depends significantly upon our proprietary technology. We currentlyrely on a combination of copyright and trademark laws, trade secrets,confidentiality procedures and contractual provisions to protect ourproprietary rights. We have registered trademarks for many of our products andservices and will continue to evaluate the registration of additionaltrademarks as appropriate. We generally enter into confidentiality agreementswith our employees and with our resellers and customers. We seek to protect oursoftware, documentation and other written materials under trade secret andcopyright laws, which afford only limited protection. Despite these efforts, itmay be possible for unauthorized third parties to copy certain portions of ourproducts or to reverse engineer or otherwise obtain and use our proprietaryinformation. We do not have any patents, and existing copyright laws affordonly limited protection. In addition, we cannot be certain that others will notdevelop substantially equivalent or superseding proprietary technology, or thatequivalent products will not be marketed in competition with our products,thereby substantially reducing the value of our proprietary rights. We cannotassure you that we will develop proprietary products or technologies that arepatentable, that any patent, if issued, would provide us with any competitiveadvantages or would not be challenged by third parties, or that the patents ofothers will not adversely affect our ability to do business.

             Litigationmay be necessary to protect our proprietary technology. This litigation may betime-consuming and expensive. Despite our efforts to protect our proprietaryrights, unauthorized parties may attempt to copy aspects of our products or toobtain and use information that we regard as proprietary. In addition, the lawsof some foreign countries do not protect proprietary rights to as great anextent as do the laws of the United States. We cannot assure you that our meansof protecting our proprietary rights will be adequate or that our competitorswill not independently develop similar technology, duplicate our products ordesign around any patent that may be issued to us or other intellectual propertyrights of ours.

**We Face Risks Associated with Potential Acquisitions,Investments or Divestitures.**

             Wehave acquired and made, and in the future may acquire or make, investments incomplementary companies, products or technologies. In addition, we continuallyevaluate the performance of all our products and product lines and may sell ordiscontinue current products or product lines. If we buy a company, we couldhave difficulty in integrating that company's personnel and operations. Inaddition, the key personnel of the acquired company may decide not to work forus. If we make other types of acquisitions, we could have difficulty inassimilating the acquired technology or products into our operations. Thesedifficulties could disrupt our ongoing business, distract our management andemployees and increase our expenses. Furthermore, we may have to incur debt,write-off software development costs or other assets, incur severanceliabilities, amortize expenses related to goodwill and other intangible assets,write-off impaired intangible assets or issue equity securities to pay for anyfuture acquisitions. The issuance of equity securities could dilute ourexisting stockholders' ownership.

 

             Potentialacquisition candidates targeted by us may not have audited financialstatements, detailed financial information or any degree of internal controls.There can be no assurance that an audit subsequent to any successful completionof an acquisition will not reveal matters of significance, including issues regardingrevenues, expenses, liabilities, contingent or otherwise, technology, products,services or intellectual property. There can be no assurance that we would besuccessful in overcoming these or any other significant risks encountered andthe failure to do so could have a material adverse effect upon our business,operating results and financial condition. In addition, we may not identifysuitable businesses to acquire or negotiate acceptable terms for acquisitions.

**We Must Retain Key Employees and Recruit Qualified Technicaland Sales Personnel.**

             Webelieve that our success will depend on the continued employment of our seniormanagement and key technical personnel, none of whom has an employmentagreement with us. Additionally, our continued success depends, in part, on ourability to identify, attract, motivate and retain qualified technical, salesand other personnel. Because our future success is dependent on our ability tocontinue to enhance and introduce new products, we are particularly dependent onour ability to identify, attract, motivate and retain qualified engineers withthe requisite education, backgrounds and industry experience. Competition forqualified engineers, particularly in Northern California and the San FranciscoBay Area, is intense. The loss of the services of a significant number of ourengineers or sales people could be disruptive to our development efforts orbusiness relationships and could seriously harm our business.

**Business Interruptions Could Adversely Affect Our Business.**

             Ouroperations are vulnerable to interruption by fire, earthquake, power loss,telecommunications failure and other events beyond our control. Our facilitiesin California are currently subject to electrical blackouts as a consequence ofa shortage of available electrical power. Although we do have a backupgenerator, which we would be able to utilize to maintain criticalfunctionality, in the event these blackouts continue or increase in severity,they could disrupt the operations of our affected facilities. In connectionwith the shortage of available power, prices for electricity have risendramatically, and will likely continue to increase for the foreseeable future.Such price changes will increase our operating costs, which could in turn hurtour profitability.

**Item 3.Quantitative and Qualitative Disclosures About Market Risk**

             We considered theprovision of Financial Reporting Release No. 48 "Disclosure of AccountingPolicies for Derivative Financial Instruments and Derivative CommodityInstruments, and Disclosure of Quantitative and Qualitative Information aboutMarket Risk Inherent in Derivative Financial Instruments, Other FinancialInstruments and Derivative Commodity Instruments". We are exposed tofinancial market risks, including changes in foreign currency exchange ratesand interest rates.  Much of our revenueand capital spending is transacted in U.S. dollars. However, since theformation of Advent Australia whose revenues and capital spending are transactedin Australian dollars we have greater exposure to foreign currencyfluctuations.  Results of operationsfrom Advent Australia are not material to our operating results, therefore, webelieve that foreign currency exchange rates should not materially adverselyaffect our overall financial position, results of operations or cashflows.  We believe that the fair valueof our investment portfolio or related income would not be significantlyimpacted by increases or decreases in interest rates due mainly to theshort-term nature of our investment portfolio. However, a sharp increase ininterest rates could have a material adverse affect on the fair value of ourinvestment portfolio.  Conversely, sharpdeclines in interest rates could seriously harm interest earnings of ourinvestment portfolio.

             The following tablepresents principal amounts by expected maturity (in U.S. dollars) and relatedweighted average interest rates by year of maturity for our investmentportfolio.

 

|                                             |           |       |           |       |          |       |                                    |              |   |              |       |       |            |       |
|--------------------------------------------------|----------------|------------|----------------|------------|---------------|------------|-----------------------------------------|-------------------|--------|-------------------|------------|------------|-----------------|------------|
|                                             |           |       |           |       |          |       | **Estimated Fair  Value   at June 30,** | **   ** |   | **   ** |
|                                             |           |       |           |       |          |       |                                    |              |   |              |       |       |            |       |
|                                             | 2001           |       | 2002           |       | 2003          |       | 2004                                    |              | 2005   |              | Thereafter |       | Total           |       |
|                                             |           |       |           |       |          |       |                                    |              |   |              |       |       |            |       |
|                                             |           |       |           |       |          |       |                                    |              |   |              |       |       |            |       |
| Federal Instruments                              | 7,215,000      |       | 7,500,000      |       | 3,750,000     |       |                                    |              |   |              |       |       | 18,465,000      |       |
| Weighted Average Interest Rate                   | 4.14           |       | 5.65           |       | 4.97          |       |                                    |              |   |              |       |       | 4.92            |       |
|                                             |           |       |           |       |          |       |                                    |              |   |              |       |       |            |       |
| Commercial Paper & Short-term  obligations   | 50,993,000     |       | 1,600,000      |       |          |       |                                    |              |   |              |       |       | 52,593,000      |       |
| Weighted Average Interest Rate                   | 3.63           |       | 4.47           |       |          |       |                                    |              |   |              |       |       | 3.66            |       |
|                                             |           |       |           |       |          |       |                                    |              |   |              |       |       |            |       |
| Corporate Notes & Bonds                      | 1,503,000      |       | 11,309,000     |       | 2,500,000     |       |                                    |              |   |              |       |       | 15,312,000      |       |
| Weighted Average Interest Rate                   | 8.71           |       | 6.51           |       | 6.33          |       |                                    |              |   |              |       |       | 6.70            |       |
|                                             |           |       |           |       |          |       |                                    |              |   |              |       |       |            |       |
| Municipal Notes & Bonds                      | 35,950,000     |       | 8,125,000      |       | 3,280,000     |       |                                    |              |   |              |       |       | 47,355,000      |       |
| Weighted Average Interest Rate                   | 3.32           |       | 5.08           |       | 5.79          |       |                                    |              |   |              |       |       | 3.80            |       |
|                                             |                |       |                |       |               |       |                                         |              |        |              |            |       |                 |       |
| **Total Portfolio, excluding equity securities** | **95,661,000** | ** ** | **28,534,000** | ** ** | **9,530,000** | ** ** | **-**                                   | ** **        | **-**  | ** **        | **-**      | ** ** | **133,725,000** | ** ** |
|                                             |           |       |           |       |          |       |                                    |              |   |              |       |       |            |       |

 

             At June 30, 2001, cash,cash equivalents and short-term marketable securities totaled approximately$159,684 million, which is comprised of the $133,725 million in our investmentportfolio presented above and $25,959 million in other cash and cashequivalents.

**PART II. OTHERINFORMATION**

**Item 1.****Legal Proceedings**

             From time to time we are involvedin litigation incidental to the conduct of our business. We are not party toany lawsuit or proceeding that, in our opinion, is likely to seriously harm ourbusiness.

**Item 2.****Changes in Securities**

             None.

**Item 3. Defaults Upon Senior Securities**

             None.

**Item 4. Submission of Matters to a Vote of SecurityHolders**

             At our AnnualMeeting of Stockholders, held May 3, 2001, the following matters were votedupon by stockholders pursuant to proxies solicited pursuant to Regulation 14Aof the Securities Exchange Act of 1934:

             The followingindividuals were elected to the Board of Directors:

 

|                      |       |   |        |       |
|---------------------------|------------|--------|-------------|------------|
| **NOMINEE**               | **FOR**    |   | **AGAINST** | ** ** |
| ****                      | ****       |   | ****        |       |
| Ms.  Stephanie G. DiMarco | 27,391,913 |   | 321,689     |       |
| Mr. Peter  M. Caswell     | 23,798,615 |   | 3,914,987   |       |
| Mr. Frank  H. Robinson    | 27,385,585 |   | 328,017     |       |
| Mr.  Wendell G. Van Auken | 27,598,714 |   | 114,888     |       |
| Mr.  William F. Zuendt    | 27,597,864 |   | 115,738     |       |
| Mr. Monte  Zweben         | 27,597,700 |   | 115,902     |       |
|                      |       |   |        |       |

 

 

             The vote for ratification of the appointment ofPricewaterhouseCoopers LLP was as follows

 

|       |   |        |   |        |
|------------|--------|-------------|--------|-------------|
| **FOR**    |   | **AGAINST** |   | **ABSTAIN** |
| ****       |   | ****        |   | ****        |
| 27,494,195 |   | 217,534     |   | 1,873       |

 

**Item 5.****Other Information**

             None.

**Item 6. Exhibits And Reports On Form 8-K**

|   | (a)    | Exhibits            |
|--------|--------|---------------------|
|   |   |                |
|   | None.  |
|   |   |
|   | (b)    | Reports on Form 8-K |
|        |        |                     |  |

 

             On July 27, 2001 we filed an 8-Kwhich included sections of our June 30, 2001 earnings announcement includingassociated unaudited condensed financial statements.

 

**SIGNATURES**

             Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 

|                       | ADVENT SOFTWARE, INC.                                                                                                               |
|----------------------------|-------------------------------------------------------------------------------------------------------------------------------------|
|                       |                                                                                                                                |   |
| **Dated:** August 13, 2001 | By:                                                                                                                                 | /s/     IRV H. LICHTENWALD |
|                       |                                                                                                                                |  |
|                       | Irv H.  Lichtenwald *Executive  Vice President of Finance,  Chief Financial Officer**and  Secretary  (Principal Financial Officer)* |   |
|                       |                                                                                                                                |   |
| **Dated:** August 13, 2001 | By:                                                                                                                                 | /s/         PATRICIA VOLL |
|                       |                                                                                                                                |  |
|                       | *Patricia Voll   Vice President of Finance**(Principal  Accounting Officer)*                                                        |   |
|                            |                                                                                                                                     |  |  |  |  |