##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


FOR ANNUAL AND TRANSITION REPORTS


PURSUANT TO SECTIONS 13 OR 15(d) OF THE


SECURITIES EXCHANGE ACT OF 1934


|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the fiscal year ended December 31, 2004                                                 
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|  
|   |  | For the transition period
    from           to                                             

Commission File Number 0-25361





Onyx Software Corporation


(Exact Name of Registrant as Specified in its Charter)


|                                                                    |  |                                         
|------------------------------------------------------------------- |  | ----------------------------------------
|Washington                                                          |  | 91-1629814                              
|(State or Other Jurisdiction of
     Incorporation or Organization) |  | (I.R.S. Employer
    Identification No.)

1100  112th Avenue N.E., Suite 100, Bellevue,
Washington 98004-4504


(Address of Principal Executive Offices)


(425) 451-8060


(Registrants Telephone Number, Including Area Code)





Securities Registered Pursuant to Section 12(b) of the
Act:


None.


Securities Registered Pursuant to Section 12(g) of the
Act:


Common Stock, $.01 Par Value Per Share


Preferred Stock Purchase Rights, $.01 Par Value Per
Share





þ o


þ


þ o






DOCUMENTS INCORPORATED BY REFERENCE












---










ONYX SOFTWARE CORPORATION


FORM 10-K


For the Year Ended December 31, 2004


INDEX


|             |  |                                                                                           |    |      |    |  |  | 
|------------ |  | ----------------------------------------------------------------------------------------- | -- | ---- | -- |  |  | 
|             |  |                                                                                           |    | Page |   
|             |  |                                                                                           |    |      |   
|PART I      
|Item 1.      |  | Business                                                                                  |    |      | 3  | 
|Item 2.      |  | Properties                                                                                |    |      | 26 | 
|Item 3.      |  | Legal Proceedings                                                                         |    |      | 26 | 
|Item 4.      |  | Submission of Matters to a Vote of Security
    Holders                                   |    |      | 26 | 
|PART II     
|Item 5.      |  | Market for the Registrants Common
    Equity and Related Shareholder Matters             |    |      | 27 | 
|Item 6.      |  | Selected Consolidated Financial Data                                                      |    |      | 28 | 
|Item 7.      |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations |    |      | 29 | 
|Item 7A.     |  | Quantitative and Qualitative Disclosures
    About Market Risk                            |    |      | 44 | 
|Item 8.      |  | Consolidated Financial Statements and
    Supplementary Data                              |    |      | 46 | 
|Item 9.      |  | Changes in and Disagreements With
    Accountants on Accounting and Financial Disclosure  |    |      | 78 | 
|Item 9A.     |  | Controls and Procedures                                                                   |    |      | 78 | 
|Item 9B.     |  | Other Information                                                                         |    |      | 79 | 
|PART III    
|Item 10.     |  | Directors and Executive Officers of the
    Registrant                                    |    |      | 79 | 
|Item 11.     |  | Executive Compensation                                                                    |    |      | 79 | 
|Item 12      |  | Security Ownership of Certain Beneficial
    Owners and Management                        |    |      | 79 | 
|Item 13.     |  | Certain Relationships and Related
    Transactions                                        |    |      | 79 | 
|Item 14.     |  | Principal Accountant Fees and Services                                                    |    |      | 79 | 
|PART IV     
|Item 15.     |  | Exhibits and Financial Statement
    Schedules                                            |    |      | 80 | 
|             |  |                                                                                           |    |      |    |  |  | 
|Signatures   |  |                                                                                           | 84 |     
|EXHIBIT 21.1
|EXHIBIT 23.1
|EXHIBIT 31.1
|EXHIBIT 31.2
|EXHIBIT 32.1
|EXHIBIT 32.2





---



##### Table of Contents






PART I






| |   |                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | information concerning possible or assumed future operating
    results, trends in financial results and business plans,
    including those relating to earnings growth and revenue growth;
|
| |  | statements about the level of our costs and operating expenses
    relative to our revenues, and about the expected composition of
    our revenues;                                        
|
| |  | statements about our future capital requirements and the
    sufficiency of our cash, cash equivalents, investments and
    available bank borrowings to meet these requirements;           
|
| |  | information about the potential benefits of our products;                                                                                                                                   
|
| |  | other statements about our plans, objectives, expectations and
    intentions; and                                                                                                          
|
| |  | other statements that are not historical facts.                                                                                                                                             










|        |         
|------- | --------
|ITEM 1. | BUSINESS

Overview






3



---



##### Table of Contents







Industry Background








4



---



##### Table of Contents







Advantages of the Onyx Solution










|                               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------------------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Strategic Business Improvement |  | Our solutions are designed to increase both the effectiveness
    and the efficiency of how our customers market, sell and support
    their products or services. Each of our customers has specific
    business objectives for its operating environment, such as
    increased revenues, increased customer satisfaction and loyalty
    or improved margins. Our solutions are adaptable to our
    customers processes and assist our customers in creating
    operating metrics to achieve their goals and deliver
    extraordinary customer experiences.                                                                                                                                                                                                                                                                                                                                                                      
|                              
|Business Alignment             |  | Our solutions align all customer-facing departments around a
    common sales and marketing strategy and around holistic customer
    management processes. Onyxs integrated solutions give
    organizations the ability to manage the entire customer
    lifecycle from end to end, rather than simply automating
    departmental functions. We use a flexible, integrated workflow
    and an integrated data model that, unlike traditional customer
    interaction software, such as sales-force automation software or
    other point solutions, provide a single repository
    of marketing, service and sales information throughout the
    organization. Our technology also provides for linkages and
    workflow of business processes to extend across the
    customer-facing departments into the back office functions of an
    organization, which can reduce cost of integration and increase
    efficiency.

5



---



##### Table of Contents





|                                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Rapid Deployment                |  | From strategy development to technology implementation, our
    solutions are designed to be rapidly deployable throughout the
    enterprise so companies can quickly adapt to rapid changes in
    the business environment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                               
|Ease of Use                     |  | Our solutions facilitate consistent communication and
    collaboration across the organization through clearly defined
    and customized operating procedures and a suite of easy-to-use
    interfaces. Interfaces and processes can be tailored by
    audience, device and skill level. We have been recognized by the
    industry for this advantage by receiving users choice
    awards for leading ease of use.                                                                                                                                                                                                                                                                                                     
|                               
|Return on Investment            |  | The total cost of deploying customer management solutions
    includes more than the cost of the software. Our solutions are
    designed to provide rapid and significant results at a
    reasonable total expense, which includes user training, broad
    deployment, design and on-going flexibility to match the
    organizations needs. We believe our solutions offer a
    higher overall return on investment and faster payback than
    competing customer management solutions. Our design philosophy
    takes the entire cost of ownership into account, including
    training, integration with other systems, upgrades and
    maintenance, hardware and other necessary support.                          
|                               
|Scalability and Flexibility     |  | We designed our software so that it can scale up and down to
    serve the needs of large enterprises, governments and
    mediumsized businesses. Studies sponsored by us and run in
    scalability labs showed our solutions ability to scale to
    57,000 simultaneous users in a real-world testing environment.
    We believe that a customer management solution needs to be able
    to scale down as well so that it can handle the needs of smaller
    divisions or other smaller groups within a large enterprise. Our
    software is flexible, scalable and widely deployable across a
    wide spectrum of business sizes. We currently have solutions
    deployed that range from 25 seats to 5,000 seats.
|                               
|Service  Oriented Architecture |  | Our software is built on a highly flexible, service oriented
    architecture that provides users with a comprehensive Internet
    interface for managing customer and partner relationships. We
    designed our technology to provide our customers and partners
    more flexibility for integrating additional applications and
    workflows and for deploying the system across a larger and more
    distributed workforce than we believe would be possible with
    competing architectures.                                                                                                                                                                                                                         
|                               
|Web Services Components         |  | We have taken advantage of our Internet architecture and its Web
    services components to fully expose data and processes from
    within our application via Web services to make it easier for
    other software applications to access them, even if they are
    written in a different programming language. We believe this
    open and flexible technology approach allows us to address a
    broader array of industry-specific and user-specific needs by
    diversifying the form our software can take. Our software
    utilizes extensible markup language, or XML, making it
    comparatively easy to integrate with other systems.                                                                       

6



---



##### Table of Contents



Strategy






|                                                                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exploit Demand for Integrated Customer Applications                |  | We offer companies a single platform for automating interactions
    across the enterprise (for example, divisions of large
    multinational corporations) and across a companys network
    of partners and affiliates. A single platform becomes more
    important as businesses are increasingly seeking to consolidate
    legacy databases and systems for greater operating efficiency
    and to gain market share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                  
|Provide Rapidly Deployable and Adaptable Solutions                 |  | We designed our solutions to be quickly and efficiently deployed
    in large enterprises. We believe the length of time it takes to
    deploy traditional CRM solutions, as well as the high costs of
    deployment, are unacceptable to growing numbers of
    organizations. Competitive pressures encourage organizations of
    all sizes to adopt information technology solutions that are
    quickly deployed, meet business-critical needs and provide
    interfaces that minimize user training and facilitate
    incremental upgrades, extensions and scalability. We plan to
    continue to design our products to maintain low total cost of
    ownership yet at the same time, automate unique, complex and
    changing business processes within organizations.                                                                                                                            
|                                                                  
|Leverage our Flexible Architecture and Create Robust
    Solutions |  | Our open and flexible architecture allows us to offer subsets of
    our solutions both through our direct sales force and in
    cooperation with partners to the marketplace. Our partners also
    sometimes offer supersets of our solutions, building upon our
    core application. Highly functional, yet cost-effective,
    industryspecific solutions based on our technology are
    marketed by us and our partners. A prime example of such a
    solution is Onyx OneServe, which is targeted at the government
    market. Onyxs technology is attractive to partners who
    wish to incorporate customer management functionality into their
    offerings and to companies who wish to leverage this model to
    publish specific functionality to certain divisions or
    affiliated businesses organizations, such as thirdparty
    distributors or brokers for that companys products.
|                                                                  
|Maintain Industry-Leading Customer Satisfaction                    |  | We plan to maintain our industry-leading customer satisfaction
    through high-quality products and partners, superior
    implementation and responsive customer service and support.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                  
|Expand Strategic Partnerships                                      |  | We are actively adding key distribution, integration and
    technology partners with proven expertise and existing customers
    in their respective markets. We believe that expanding the
    breadth of our partnerships will provide us with increased
    access to prospective customers in various geographic and
    vertical markets. In addition to traditional VARs, which might
    tailor a standard version of an Onyx solution for a specific
    market, we also team with software providers and other partners
    who may integrate specific functional components of our
    solutions and embed them into the workflow of their own
    applications. We are also increasing our focus on integrators
    who include Onyx solutions as part of a comprehensive                                                                                                                             

7



---



##### Table of Contents



|                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                     |  | offering tailored to meet an organizations specific
    requirements, often as part of a multi-year managed services
    program.                                                                                                                                                                                                                                                                                                                    
|                                    
|Expand Internationally               |  | Our products have been localized in 11 languages and we are
    compliant with Unicode, an industry-wide standard that enables
    companies to use multilingual text in a single database, at all
    three levels of our architecture. We plan to expand our global
    operations by investing in our sales channels in major
    international markets.                                                                                           
|                                    
|Increase Vertical Market Penetration |  | We plan to design and deliver additional industry-specific
    functionality as part of our product portfolio to better meet
    the requirements of specific vertical markets. We are focusing
    on large segments within the services sector such as financial
    services, insurance and government. We also plan to partner with
    VARs, system integrators and OEMs to provide tailored,
    industry-specific solutions to the marketplace.

Products and Services






| |         
| | --------
| | Products





The Onyx e-Business Engine




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Universal Interface Frameworkenables enterprises to
    deliver customer data to multipleuser communities through
    a variety of offline and online interfaces, including
    Windows-based clients, Internet-based clients, Outlook-based
    clients and handheld devices.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | The e-Business Process Technologymanages the flow of
    information and process through all customer-facing departments,
    including marketing, sales and service organizations. The
    e-Business Process Technology is responsible for customer
    management activity, including list management, marketing
    campaign execution, e-mail marketing, marketing collateral
    distribution, lead management, sales process management,
    forecasting, quote generation, reporting, service automation,
    knowledge management, incident escalation and routing, workflow
    management, Internet-based qualification, e-mail support,
    Internet-based lead capture, Internet-based support, partner
    management and other Internet-based and non-Internet-based
    customer management processes.

8



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The e-Business Data Centeris an enterprise-wide,
    customer-centric solution for managing all customer-related
    information. The e-Business Data Center consists of multiple
    data storage structures.                                                                                                                                                                                                                                   
|
| |  | The e-Business Integration Frameworkconsists of multiple
    integration technologies that are designed to enable customers
    to link our e-Business Engine with other systems, including
    Internet-based content, Internet-based applications, legacy
    enterprise resource planning and accounting applications,
    computer telephony solutions, reporting applications, commerce
    solutions and desktop productivity applications.

Onyx Employee Portal


Onyx Partner Portal


Onyx Customer Portal


Onyx Process Management,


Onyx Rules Builder


Onyx Process Designer


Onyx Integration Engine


Onyx Performance Management,




9



---



##### Table of Contents









| |                      
| | ---------------------
| | Professional Services





|                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|---------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Consulting       |  | We offer our customers high-quality consulting services,
    including business process reengineering, change management,
    product installation and configuration, product migration,
    systems integration, data conversion, custom development, and
    project management. Independently, or in conjunction with
    certified partners, we work closely with our customers to
    identify their business needs and configure the solution to
    these needs in an efficient, cost-effective manner.
|                
|Customer Support |  | We have implemented a comprehensive customer support program to
    assist customers who use, configure and build upon our products.
    The support program includes e-mail support, on-line support via
    the Internet and telephone support from our worldwide support
    centers. In addition, we offer a premium support program that
    allows our customers to contact our support centers around the
    world seven days a week, 24 hours a day.                                                 
|                
|Training         |  | We offer a broad range of classroom and on-premise educational
    courses. Classroom-based educational courses cover the
    implementation and administration of our products. On-premise
    education includes client-specific end-user training and
    technical training.                                                                                                                                                                                                                              







| |                
| | ---------------
| | Onyx Technology



| |                            
| | ---------------------------
| | Internet-Based Architecture



10



---



##### Table of Contents







| |                          
| | -------------------------
| | XML Integration Framework





| |                          
| | -------------------------
| | Enterprise Class Platform





Support for Multiple Platforms.


n-tiered Architecture.


11



---



##### Table of Contents



Configuration.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Presentation Services Tier. Our Internet-based portal
    interface can be customized by leveraging our graphical
    administration tools and the inherent openness, extensibility
    and customizability of Internet forms architecture.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Business Logic Services Tier. Our applications
    business logic can be customized via a suite of graphical
    administration tools coupled with an open programmatic
    customization framework. The graphical administration tools
    allow customers to easily model business terminology, processes,
    workflow and security. For more complex customizations,
    customers are not limited to graphical user interface
    administration tools; they can also use market-available
    development tools to extend the application. Our customization
    framework provides an industry-standard development environment
    in which complex processes and rules can be modeled. Business
    terminology, rules, workflows and security models are inherited
    by alternative client interfaces.
|
| |  | Data Services Tier. Our software application includes a
    generic data access integration framework that can be used to
    manage data residing inside or outside the standard Onyx
    e-Business Data Center. By using this service and the forms
    customization framework, the Onyx e-Business Engine can manage
    information that extends beyond merely traditional CRM.                                                                                                                                                                                                                                                                                                                                                                                                                              

Integration With Other Enterprise Applications.


Store and Forward Synchronization Architecture.


Integrated Data Model.


Multiple Interface Support.


Standards-Based Tools and Components.


12



---



##### Table of Contents



Cross-Platform Interoperability.


Customers and Markets




|                                          |  |                                |  |                          
|----------------------------------------- |  | ------------------------------ |  | -------------------------
|Financial Services                        |  | Government                     |  | Health Care              
|AIG Alico Japan                           |  | Cambridgeshire County Council  |  | Gentiva Health Services  
|AIU Insurance Company                     |  | Highland Council               |  | HealthNow, NY            
|American Express Third Party Distribution |  | Lancashire County Council      |  | Nihon Iyakuhin Kougyou KK
|Australian Central Credit Union Ltd       |  | London Borough of Hillingdon   |  | Regence Group            
|Boston Private Bank & Trust Company       |  | London Borough of Lambeth      |  | UnumProvident            
|Glenmede Trust                            |  | Medway Council                 |  |                          
|J.F. Shea                                 |  | Redcar & Cleveland Council     |  | Other                    
|Metavante Corporation                     |  | Tourism Tasmania               |  | AgVantis                 
|Nuveen Investments                        |  | Worcestershire County Council  |  | AmeriCold Logistics      
|Pacific Investment Management Company     |  |                                |  | Amway Japan Limited      
|Palmer & Cay                              |  | Telecommunications & Media     |  | Calor Gas                
|Saxon Mortgage                            |  | CCH Australia Limited          |  | Costa Crociere SpA       
|Stewart Information Services              |  | NTT Communications Corporation |  | Europ Assistance         
|SunAmerica, Inc.                          |  | Reed Business Information      |  | Greene King BBW PLC      
|                                          |  | SpectraSite                    |  | Hewitt Associates LLC    
|Technology                                |  | Starhub Cable Vision Ltd       |  | Metron North America     
|Daiwabo Information Systems               |  | Telekom Malaysia Bhd           |  | Starbucks Coffee Company 
|Fundtech Corporation                      |  |                                |  |                          
|Konica Minolta Business Technologies      |  |                                |  |                          
|Suricata, S.A.                            |  |                                |  |                          

Sales and Marketing






13



---



##### Table of Contents













Research and Development








| |   |                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | specification and review of business requirements, functional
    requirements, prototypes, technical designs, test plans and
    documentation plans;
|
| |  | iterative, scheduled quality assurance of code and documentation;                                                                                     
|
| |  | frequent stabilization of product;                                                                                                                    
|
| |  | test automation definition, instrumentation and execution;                                                                                            

14



---



##### Table of Contents





| |   |                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------
| |  | test of functions, components, systems, integration,
    performance, stress and internationalization;
|
| |  | full product regression testing before beta or general
    availability releases;                     
|
| |  | trial deployments in an internal production environment prior to
    release;                         
|
| |  | beta releases; and                                                                                    
|
| |  | general availability release of English and localized products.                                       



Intellectual Property and Other Proprietary Rights








Competition








| |   |                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our potential customers internal information technology
    departments, which may seek to develop proprietary systems
    in-house;               
|
| |  | front-office software application vendors, such as Pivotal
    Corporation (a wholly owned subsidiary of CDC Software) and
    Siebel Systems, Inc.;

15



---



##### Table of Contents





| |   |                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | large enterprise software vendors, such as Amdocs Limited,
    Oracle Corporation, PeopleSoft, Inc. (recently acquired by
    Oracle Corporation) and SAP AG; and
|
| |  | providers of hosted CRM solutions, such as RightNow Technologies
    and Salesforce.com.                                                                         



Employees




Important Factors That May Affect Our Business, Our Results
of Operations and Our Stock Price




| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | Our operating results fluctuate and could fall below
    expectations of investors, resulting in a decrease in our stock
    price.





| |   |                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | general economic conditions, which may affect our
    customers capital investment levels in management
    information systems and the timing of their purchases;                                                                  
|
| |  | the loss of any key technical, sales, customer support or
    management personnel and the timing of any new hires;                                                                                                                  
|
| |  | budget and spending decisions by our prospective and existing
    customers;                                                                                                                                                         
|
| |  | customers and prospects decisions to defer orders or
    implementations, particularly large orders or implementations,
    from one quarter to the next, or to proceed with
    smaller-than-forecasted orders or implementations;
|
| |  | level of purchases by our existing customers, including
    additional license and maintenance revenues;                                                                                                                             
|
| |  | our ability to compete in the highly competitive customer
    management systems market;                                                                                                                                             
|
| |  | our ability to develop, introduce and market new products and
    product versions on a timely basis;                                                                                                                                
|
| |  | rate of market acceptance of our software solutions;                                                                                                                                                                                 
|
| |  | variability in the mix of our license versus service revenue,
    the mix of our direct versus indirect license revenue and the
    mix of services that we perform versus those performed by
    third-party service providers;     
|
| |  | our ability to successfully expand our operations, and the
    amount and timing of expenditures related to this expansion;                                                                                                          
|
| |  | the costs we incur as a result of our ongoing efforts to comply
    with the regulations promulgated under the Sarbanes-Oxley Act of
    2002;                                                                                       

16



---



##### Table of Contents





| |   |                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------
| |  | the cost and financial accounting effects of any acquisitions of
    companies or complementary technologies that we may
    complete; and
|
| |  | the expense we incur as a result of an impairment in our
    goodwill.                                                                    





| |   |                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our sales cycles are lengthy and variable, typically ranging
    between six and twelve months from our initial contact with a
    potential new customer to the signing of a license agreement,
    although the sales cycle varies substantially from customer to
    customer, and occasionally requires substantially more time;
|
| |  | a substantial portion of our sales are completed at the end of
    the quarter and, as a result, a substantial portion of our
    license revenue is recognized in the last month of a quarter,
    and often in the last weeks or days of a quarter;                                                                               
|
| |  | the contracting process of our sales cycle may take more time
    than we have historically experienced;                                                                                                                                                                                                                            
|
| |  | the amount of unfulfilled orders for our products at the
    beginning of a quarter is small because our products are
    typically shipped shortly after orders are received; and                                                                                                                                                  
|
| |  | delay of new product releases can result in a customers
    decision to delay execution of a contract or, for contracts that
    include the new release as an element of the contract, will
    result in deferral of revenue recognition until such release.                                                                     





| |                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| | We have incurred losses in prior periods, and may not be
    able to return to profitability, which could cause a decrease in
    our stock price.









| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to compete successfully in the highly
    competitive customer management systems market, our business
    will fail.



17



---



##### Table of Contents











| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | If we do not retain our key employees and management team
    our ability to execute our business strategy will be
    limited.



18



---



##### Table of Contents





| |                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may be unable to obtain the funding necessary to
    support the expansion of our business, and any funding we do
    obtain could dilute our shareholders ownership interest in
    Onyx.









| |                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to develop and maintain effective
    long-term relationships with our key partners, or if our key
    partners fail to perform, our ability to sell our solution will
    be limited.





19



---



##### Table of Contents







| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | we are unable to develop and maintain effective, long-term
    relationships with existing and potential key partners;  
|
| |  | our existing and potential key partners endorse a product or
    technology other than our solutions;                   
|
| |  | we are unable to adequately train a sufficient number of key
    partners; or                                           
|
| |  | our existing and potential key partners do not have or do not
    devote resources necessary to implement our solutions.



| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | Economic and business conditions could adversely affect
    our revenue growth and ability to forecast revenue.









| |                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The internal controls implemented under the Sarbanes-Oxley
    Act of 2002 may not prevent or detect all material weaknesses or
    significant deficiencies.



20



---



##### Table of Contents







| |                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Fluctuations in support and service revenue could decrease
    our total revenue or decrease our gross margins, which could
    cause a decrease in our stock price.





| |                                                                                         
| | ----------------------------------------------------------------------------------------
| | We have a limited operating history and are subject to the
    risks of new enterprises.





| |   |                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | no history of sustained profitability;                                                                                                                                             
|
| |  | uncertain growth in the market for, and uncertain market
    acceptance of, our solutions;                                                                                         
|
| |  | reliance on one product family;                                                                                                                                                    
|
| |  | the risk that competition, technological change or evolving
    customer preferences, such as preferences for different
    computing platforms, could harm sales of our solutions;
|
| |  | the need to implement our sales, marketing and after-sales
    service initiatives, both domestically and internationally;                                                         
|
| |  | the need to execute our product development activities;                                                                                                                            
|
| |  | dependence on a limited number of key technical, customer
    support, sales and managerial personnel; and                                                                         
|
| |  | the risk that our management will be unable to effectively
    manage growth, a downturn or any acquisition we may undertake.                                                      

21



---



##### Table of Contents







| |                                                                 
| | ----------------------------------------------------------------
| | Our solutions may not achieve significant market
    acceptance.





| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | If potential customers do not accept the Onyx product
    family, our business will fail.





| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | We may be unable to efficiently restructure or expand our
    sales organization, which could harm our ability to expand our
    business.





| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| | If our customers cannot successfully implement our
    products in a timely manner, demand for our solutions will be
    limited.



22



---



##### Table of Contents





| |                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Rapid changes in technology could render our products
    obsolete or unmarketable, and we may be unable to introduce new
    products and services successfully and in a timely
    manner.







| |                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we do not expand our international operations and
    successfully overcome the risks inherent in international
    business activities, the growth of our business will be
    limited.





| |   |                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | costs of customizing products for foreign countries;                                                                                                                                  
|
| |  | export and import restrictions, taxes, tariffs and other trade
    barriers;                                                                                                          
|
| |  | the need to comply with multiple, conflicting and changing laws
    and regulations;                                                                                                  
|
| |  | reduced protection of intellectual property rights and increased
    liability exposure; and                                                                                          
|
| |  | regional economic, cultural and political conditions, including
    the direct and indirect effects of terrorist activity and armed
    conflict in countries in which we do business.





23



---



##### Table of Contents







| |                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------
| | We may be unable to adequately protect our proprietary
    rights, which may limit our ability to compete
    effectively.





| |                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Intellectual property claims and litigation could subject
    us to significant liability for damages and result in
    invalidation of our proprietary rights.





| |   |                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | stop or delay selling, incorporating or using products that
    incorporate the challenged intellectual property;                                                    
|
| |  | pay damages;                                                                                                                                                         
|
| |  | enter into licensing or royalty agreements, which may be
    unavailable on acceptable terms; or                                                                     
|
| |  | redesign products or services that incorporate infringing
    technology, which we might not be able to do at an acceptable
    price, in a timely fashion or at all.



| |                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our products may suffer from defects or errors, which
    could result in loss of revenue, delayed or limited market
    acceptance of our products, increased costs and damage to our
    reputation.



24



---



##### Table of Contents







| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | You may be unable to resell your shares at or above the
    price at which you purchased them, and our stock price may be
    volatile.





| |   |                                                                                          
| | - | -----------------------------------------------------------------------------------------
| |  | significant trading activity by shareholders with large holdings
    in our common stock;
|
| |  | future announcements concerning us or our competitors;                                   
|
| |  | actual or anticipated quarterly variations in operating results;                         
|
| |  | changes in analysts earnings projections or
    recommendations;                        
|
| |  | announcements of technological innovations;                                              
|
| |  | the introduction of new products;                                                        
|
| |  | changes in product pricing policies by us or our competitors;                            
|
| |  | proprietary rights litigation or other litigation; or                                    
|
| |  | changes in accounting standards that adversely affect our
    revenue and earnings.      







| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | Our articles of incorporation and bylaws and Washington
    law contain provisions that could discourage a takeover.





| |   |                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | stagger the election of our board members so that only one-third
    of our board is up for reelection at each annual meeting;           
|
| |  | allow our board to issue preferred stock without any vote or
    further action by the shareholders;                                     
|
| |  | eliminate the right of shareholders to act by written consent
    without a meeting, unless the vote to take the action is
    unanimous;
|
| |  | eliminate cumulative voting in the election of directors;                                                                                
|
| |  | specify a minimum threshold for shareholders to call a special
    meeting;                                                              

25



---



##### Table of Contents





| |   |                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------
| |  | specify that directors may be removed only with cause; and                                                                                        
|
| |  | specify a supermajority requirement for shareholders to change
    those portions of our articles that contain the provisions
    described above.












|        |           
|------- | ----------
|ITEM 2. | PROPERTIES








|        |                  
|------- | -----------------
|ITEM 3. | LEGAL PROCEEDINGS








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



26



---



##### Table of Contents






PART II







|        |                                                                              
|------- | -----------------------------------------------------------------------------
|ITEM 5. | MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED
    SHAREHOLDER MATTERS

Market Information




|                             |  |                |      |  |     |   |      | 
|---------------------------- |  | -------------- | ---- |  | --- | - | ---- | 
|                             |  | Price Range of |     
|                             |  | Common Stock   |     
|                             |  |                |     
|                             |  | High           |      |  | Low |  
|                             |  |                |      |  |     |  
|Year Ended December 31, 2003 |  |                |      |  |     |   |      | 
|First Quarter                |  | $              | 6.00 |  |     | $ | 3.52 | 
|Second Quarter               |  |                | 4.76 |  |     |   | 2.40 | 
|Third Quarter                |  |                | 5.78 |  |     |   | 3.20 | 
|Fourth Quarter               |  |                | 5.54 |  |     |   | 3.32 | 
|Year Ended December 31, 2004 |  |                |      |  |     |   |      | 
|First Quarter                |  | $              | 4.83 |  |     | $ | 2.98 | 
|Second Quarter               |  |                | 4.49 |  |     |   | 3.09 | 
|Third Quarter                |  |                | 4.12 |  |     |   | 3.25 | 
|Fourth Quarter               |  |                | 3.65 |  |     |   | 3.02 | 

Holders




Dividends




27



---



##### Table of Contents








|        |                                     
|------- | ------------------------------------
|ITEM 6. | SELECTED CONSOLIDATED FINANCIAL DATA



|                                                                             |                                                                                          |                                       |        |        |         |   |         |        |         |   |         |        |        |      |        |        |        |   |        |        |        | 
|---------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | ------------------------------------- | ------ | ------ | ------- | - | ------- | ------ | ------- | - | ------- | ------ | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                                             |                                                                                          | Year Ended December 31, ?             |       
|                                                                             |                                                                                          |                                       |       
|                                                                             |                                                                                          | 2000                                  |        |        | 2001    |   |         | 2002   |         |   | 2003    |        |        | 2004 |       
|                                                                             |                                                                                          |                                       |        |        |         |   |         |        |         |   |         |        |        |      |       
|                                                                             |                                                                                          | (In thousands, except per share data) |       
|Consolidated Statement of Operations Data:                                   |                                                                                          |                                       |        |        |         |   |         |        |         |   |         |        |        |      |        |        |        |   |        |       
|Revenue:                                                                     |                                                                                          |                                       |        |        |         |   |         |        |         |   |         |        |        |      |        |        |        |   |        |       
|                                                                             | License                                                                                  |                                       | $      | 73,701 |         |   | $       | 37,584 |         |   | $       | 22,633 |        |      | $      | 12,143 |        |   | $      | 13,666 |       
|                                                                             | Support and service                                                                      |                                       |        | 47,566 |         |   |         | 62,116 |         |   |         | 46,751 |        |      |        | 46,230 |        |   |        | 43,968 |       
|                                                                             |                                                                                          |                                       |        |        |         |   |         |        |         |   |         |        |        |      |       
|                                                                             |                                                                                          | Total revenue                         |        |        | 121,267 |   |         |        | 99,700  |   |         |        | 69,384 |      |        |        | 58,373 |   |        |        | 57,634 | 
|Cost of revenue:                                                             |                                                                                          |                                       |        |        |         |   |         |        |         |   |         |        |        |      |        |        |        |   |        |       
|                                                                             | License                                                                                  |                                       |        | 3,520  |         |   |         | 2,006  |         |   |         | 1,140  |        |      |        | 848    |        |   |        | 984    |       
|                                                                             | Amortization of acquired technology                                                      |                                       |        | 820    |         |   |         | 751    |         |   |         | 498    |        |      |        | 255    |        |   |        |       |       
|                                                                             | Support and service                                                                      |                                       |        | 25,510 |         |   |         | 35,662 |         |   |         | 20,128 |        |      |        | 20,711 |        |   |        | 18,614 |       
|                                                                             |                                                                                          |                                       |        |        |         |   |         |        |         |   |         |        |        |      |       
|                                                                             |                                                                                          | Total cost of revenue                 |        |        | 29,850  |   |         |        | 38,419  |   |         |        | 21,766 |      |        |        | 21,814 |   |        |        | 19,598 | 
|                                                                             |                                                                                          |                                       |        |        |         |   |         |        |         |   |         |        |        |      |       
|Gross margin                                                                 |                                                                                          |                                       | 91,417 |        |         |   | 61,281  |        |         |   | 47,618  |        |        |      | 36,559 |        |        |   | 38,036 |       
|Operating expenses:                                                          |                                                                                          |                                       |        |        |         |   |         |        |         |   |         |        |        |      |        |        |        |   |        |       
|                                                                             | Sales and marketing                                                                      |                                       |        | 59,182 |         |   |         | 53,254 |         |   |         | 27,947 |        |      |        | 20,629 |        |   |        | 19,354 |       
|                                                                             | Research and development                                                                 |                                       |        | 21,046 |         |   |         | 21,968 |         |   |         | 14,745 |        |      |        | 11,838 |        |   |        | 10,613 |       
|                                                                             | General and administrative                                                               |                                       |        | 11,120 |         |   |         | 14,623 |         |   |         | 9,449  |        |      |        | 8,205  |        |   |        | 8,600  |       
|                                                                             | Restructuring and other related charges                                                  |                                       |        |       |         |   |         | 51,806 |         |   |         | 8,491  |        |      |        | 1,422  |        |   |        | 442    |       
|                                                                             | Amortization and impairment of goodwill and other
    acquisition-related intangibles(1) |                                       |        | 4,332  |         |   |         | 13,695 |         |   |         | 836    |        |      |        | 836    |        |   |        | 627    |       
|                                                                             | Severance charges(4)                                                                     |                                       |        |       |         |   |         |       |         |   |         |       |        |      |        |       |        |   |        | 996    |       
|                                                                             | Stock-based compensation                                                                 |                                       |        | 548    |         |   |         | 904    |         |   |         | 248    |        |      |        | 70     |        |   |        |       |       
|                                                                             |                                                                                          |                                       |        |        |         |   |         |        |         |   |         |        |        |      |       
|                                                                             |                                                                                          | Total operating expenses              |        |        | 96,228  |   |         |        | 156,250 |   |         |        | 61,716 |      |        |        | 43,000 |   |        |        | 40,632 | 
|                                                                             |                                                                                          |                                       |        |        |         |   |         |        |         |   |         |        |        |      |       
|Loss from operations                                                         |                                                                                          |                                       | (4,811 | )      |         |   | (94,969 | )      |         |   | (14,098 | )      |        |      | (6,441 | )      |        |   | (2,596 | )     
|Other income (expense), net                                                  |                                                                                          |                                       | 788    |        |         |   | 377     |        |         |   | (119    | )      |        |      | 78     |        |        |   | (340   | )     
|Change in fair value of outstanding warrants                                 |                                                                                          |                                       |       |        |         |   |        |        |         |   |        |        |        |      | 355    |        |        |   | 513    |       
|Investment losses and impairment                                             |                                                                                          |                                       | (500   | )      |         |   | (2,500  | )      |         |   |        |        |        |      |       |        |        |   | (403   | )     
|                                                                             |                                                                                          |                                       |        |        |         |   |         |        |         |   |         |        |        |      |       
|Loss before income taxes                                                     |                                                                                          |                                       | (4,523 | )      |         |   | (97,092 | )      |         |   | (14,217 | )      |        |      | (6,008 | )      |        |   | (2,826 | )     
|Income tax provision (benefit)                                               |                                                                                          |                                       | 404    |        |         |   | (294    | )      |         |   | 585     |        |        |      | 264    |        |        |   | (57    | )     
|Minority interest in loss of consolidated subsidiary                         |                                                                                          |                                       | (216   | )      |         |   | (1,283  | )      |         |   | (1,032  | )      |        |      | (118   | )      |        |   | (15    | )     
|                                                                             |                                                                                          |                                       |        |        |         |   |         |        |         |   |         |        |        |      |       
|Net loss                                                                     |                                                                                          | $                                     | (4,711 | )      |         | $ | (95,515 | )      |         | $ | (13,770 | )      |        | $    | (6,154 | )      |        | $ | (2,754 | )     
|                                                                             |                                                                                          |                                       |        |        |         |   |         |        |         |   |         |        |        |      |       
|Basic and diluted net loss per share(2)(3)                                   |                                                                                          | $                                     | (0.54  | )      |         | $ | (9.46   | )      |         | $ | (1.10   | )      |        | $    | (0.46  | )      |        | $ | (0.19  | )     
|Shares used in calculation of basic and diluted net loss per
    share(2)(3) |                                                                                          |                                       | 8,731  |        |         |   | 10,092  |        |         |   | 12,481  |        |        |      | 13,442 |        |        |   | 14,364 |       

28



---



##### Table of Contents



|                                            |  |                |         |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|------------------------------------------- |  | -------------- | ------- |  | ---- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------ |  |  | - | ------ | 
|                                            |  | December 31,   |        
|                                            |  |                |        
|                                            |  | 2000           |         |  | 2001 |   |        | 2002 |  |   | 2003   |  |  | 2004 |       
|                                            |  |                |         |  |      |   |        |      |  |   |        |  |  |      |       
|                                            |  | (In thousands) |        
|Consolidated Balance Sheet Data:            |  |                |         |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|Cash and cash equivalents                   |  | $              | 11,492  |  |      | $ | 15,868 |      |  | $ | 17,041 |  |  | $    | 10,127 |  |  | $ | 14,393 | 
|Restricted cash                             |  |                |        |  |      |   |       |      |  |   | 2,238  |  |  |      | 1,723  |  |  |   |       | 
|Working capital (deficit)                   |  |                | 25,252  |  |      |   | (4,718 | )    |  |   | 3,706  |  |  |      | 4,177  |  |  |   | 3,199  | 
|Total assets                                |  |                | 109,040 |  |      |   | 64,511 |      |  |   | 54,787 |  |  |      | 41,425 |  |  |   | 46,267 | 
|Long-term obligations, less current portion |  |                | 428     |  |      |   | 10,178 |      |  |   | 2,677  |  |  |      | 2,496  |  |  |   | 4,901  | 
|Long-term obligations  warrants            |  |                |        |  |      |   |       |      |  |   | 920    |  |  |      | 565    |  |  |   | 52     | 
|Shareholders equity                        |  |                | 66,086  |  |      |   | 8,135  |      |  |   | 16,828 |  |  |      | 16,299 |  |  |   | 16,737 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Effective January 1, 2002, we adopted the provisions of
    Statement of Financial Accounting Standards No. 142
    Goodwill and Other Intangible Assets, or
    SFAS 142. Under SFAS 142, goodwill is no longer
    amortized, beginning January 1, 2002. See Note 1 of
    Notes to Consolidated Financial Statements for further
    explanation of the impact of SFAS 142.
|   
|(2) | See Notes 1 and 12 of Notes to Consolidated Financial
    Statements for an explanation of the method used to calculate
    basic and diluted net loss per share.                                                                                                                                                                                                               
|   
|(3) | On July 23, 2003, our shareholders approved a one-for-four
    reverse stock split, which became effective on that date. All
    share and per share amounts in the accompanying consolidated
    financial statements have been adjusted to reflect this reverse
    stock split.                                                                                              
|   
|(4) | See Note 3 of Notes to Consolidated Financial Statements
    for an explanation of employee separation costs included in
    restructuring expense.                                                                                                                                                                                                                             






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS

Overview






29



---



##### Table of Contents



Overview of the Results for the Year Ended December 31,
2004






| |   |                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Revenue for 2004 of $57.6 million, down 1% from 2003 and
    down 17% from 2002;                                                                                                                                                                                                                                                                  
|
| |  | License revenue for 2004 of $13.7 million, up 13% from 2003
    and down 40% from 2002;                                                                                                                                                                                                                                                           
|
| |  | Support and service revenue for 2004 of $44.0 million, down
    5% from 2003 and down 6% from 2002;                                                                                                                                                                                                                                               
|
| |  | Service margins for 2004 of 58%, up from 55% in 2003 and up from
    57% in 2002;                                                                                                                                                                                                                                                                 
|
| |  | Total operating expenses for 2004 of $40.6 million, down
    from $43.0 million in 2003 and $61.7 million in 2002.
    Operating expenses, excluding acquisition-related amortization,
    stock compensation, severance and restructuring charges, in 2004
    were $38.6 million, down from $40.7 million in 2003
    and $52.1 million in 2002;
|
| |  | Restricted and unrestricted cash and cash equivalents balances
    of $14.4 million at December 31, 2004, compared to
    $11.9 million at December 31, 2003;                                                                                                                                                                                     
|
| |  | Days sales outstanding, based on end-of-period receivable
    balances and most recent quarters annualized revenues, of
    69 days at December 31, 2004, compared to 86 days
    at December 31, 2003;                                                                                                                                          
|
| |  | Current and long-term restructuring-related liabilities of
    $783,000 at December 31, 2004, compared to
    $3.7 million at December 31, 2003; and                                                                                                                                                                                              
|
| |  | Current and long-term deferred revenue of $19.7 million at
    December 31, 2004, compared to $16.1 million at
    December 31, 2003.                                                                                                                                                                                                             









| |   |                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------
| |  | successfully integrate new talent in our sales and marketing
    organizations;                         
|
| |  | increase our pipeline of sales opportunities;                                                           
|
| |  | enhance our market position and awareness;                                                              
|
| |  | manage our costs to allow our return to profitability;                                                  
|
| |  | focus our resources and efforts on the market opportunities with
    the highest probability of success;
|
| |  | diversify and expand partnerships with key system integration
    and technology vendors;               
|
| |  | aggressively market our recent major product releases;                                                  
|
| |  | enhance our solutions portfolio to address more customer needs;                                         
|
| |  | continue our focus on compliance with the Sarbanes-Oxley Act of
    2002; and                           
|
| |  | maintain high customer satisfaction levels.                                                             

30



---



##### Table of Contents







| |                                           
| | ------------------------------------------
| | Critical Accounting Policies and Estimates







| |                    
| | -------------------
| | Revenue Recognition













31



---



##### Table of Contents















| |                                
| | -------------------------------
| | Allowance for Doubtful Accounts





| |                       
| | ----------------------
| | Impairment of Goodwill





| |              
| | -------------
| | Restructuring



32



---



##### Table of Contents





Results of Operations






| |   |                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | general economic conditions, which may affect our
    customers capital investment levels in management
    information systems and the timing of their purchases;                                                                  
|
| |  | the loss of any key technical, sales, customer support or
    management personnel and the timing of any new hires;                                                                                                                  
|
| |  | budget and spending decisions by our prospective and existing
    customers;                                                                                                                                                         
|
| |  | customers and prospects decisions to defer orders or
    implementations, particularly large orders or implementations,
    from one quarter to the next, or to proceed with
    smaller-than-forecasted orders or implementations;
|
| |  | level of purchases by our existing customers, including
    additional license and maintenance revenues;                                                                                                                             
|
| |  | our ability to compete in the highly competitive customer
    management systems market;                                                                                                                                             
|
| |  | our ability to develop, introduce and market new products and
    product versions on a timely basis;                                                                                                                                
|
| |  | rate of market acceptance of our solutions;                                                                                                                                                                                          
|
| |  | variability in the mix of our license versus service revenue,
    the mix of our direct versus indirect license revenue and the
    mix of services that we perform versus those performed by
    third-party service providers;     
|
| |  | our ability to successfully expand our operations, and the
    amount and timing of expenditures related to this expansion;                                                                                                          
|
| |  | the costs we incur as a result of our ongoing efforts to comply
    with the regulations promulgated under the Sarbanes-Oxley Act of
    2002;                                                                                       
|
| |  | the cost and financial accounting effects of any acquisitions of
    companies or complementary technologies that we may
    complete; and                                                                                           
|
| |  | the expense we incur as a result of an impairment in our
    goodwill.                                                                                                                                                               

33



---



##### Table of Contents





|                                                     |                                                 |                          |       |      |       |  |       |      |       |  |      |      |       | 
|---------------------------------------------------- | ----------------------------------------------- | ------------------------ | ----- | ---- | ----- |  | ----- | ---- | ----- |  | ---- | ---- | ----- | 
|                                                     |                                                 | Year Ended December 31,  |      
|                                                     |                                                 |                          |      
|                                                     |                                                 | 2002                     |       |      | 2003  |  |       | 2004 |      
|                                                     |                                                 |                          |       |      |       |  |       |      |      
|Consolidated Statement of Operations Data:           |                                                 |                          |       |      |       |  |       |      |       |  |      |     
|Revenue:                                             |                                                 |                          |       |      |       |  |       |      |       |  |      |     
|                                                     | License                                         |                          |       | 32.6 | %     |  |       | 20.8 | %     |  |      | 23.7 | %    
|                                                     | Support and service                             |                          |       | 67.4 |       |  |       | 79.2 |       |  |      | 76.3 |      
|                                                     |                                                 |                          |       |      |       |  |       |      |      
|                                                     |                                                 | Total revenue            |       |      | 100.0 |  |       |      | 100.0 |  |      |      | 100.0 | 
|                                                     |                                                 |                          |       |      |       |  |       |      |      
|Cost of revenue:                                     |                                                 |                          |       |      |       |  |       |      |       |  |      |     
|                                                     | License                                         |                          |       | 1.6  |       |  |       | 1.5  |       |  |      | 1.7  |      
|                                                     | Amortization of acquired technology             |                          |       | 0.7  |       |  |       | 0.4  |       |  |      | 0.0  |      
|                                                     | Support and service                             |                          |       | 29.0 |       |  |       | 35.5 |       |  |      | 32.3 |      
|                                                     |                                                 |                          |       |      |       |  |       |      |      
|                                                     |                                                 | Total cost of revenue    |       |      | 31.4  |  |       |      | 37.4  |  |      |      | 34.0  | 
|                                                     |                                                 |                          |       |      |       |  |       |      |      
|Gross margin                                         |                                                 |                          | 68.6  |      |       |  | 62.6  |      |       |  | 66.0 |     
|Operating expenses:                                  |                                                 |                          |       |      |       |  |       |      |       |  |      |     
|                                                     | Sales and marketing                             |                          |       | 40.3 |       |  |       | 35.3 |       |  |      | 33.6 |      
|                                                     | Research and development                        |                          |       | 21.3 |       |  |       | 20.3 |       |  |      | 18.4 |      
|                                                     | General and administrative                      |                          |       | 13.6 |       |  |       | 14.1 |       |  |      | 14.9 |      
|                                                     | Restructuring and other related charges         |                          |       | 12.2 |       |  |       | 2.4  |       |  |      | 0.8  |      
|                                                     | Amortization of acquisition-related intangibles |                          |       | 1.2  |       |  |       | 1.4  |       |  |      | 1.1  |      
|                                                     | Severance charges                               |                          |       | 0.0  |       |  |       | 0.0  |       |  |      | 1.7  |      
|                                                     | Stock-based compensation                        |                          |       | 0.4  |       |  |       | 0.1  |       |  |      | 0.0  |      
|                                                     |                                                 |                          |       |      |       |  |       |      |      
|                                                     |                                                 | Total operating expenses |       |      | 88.9  |  |       |      | 73.6  |  |      |      | 70.5  | 
|                                                     |                                                 |                          |       |      |       |  |       |      |      
|Loss from operations                                 |                                                 |                          | (20.3 | )    |       |  | (11.0 | )    |       |  | (4.5 | )   
|Other income (expense), net                          |                                                 |                          | (0.2  | )    |       |  | 0.1   |      |       |  | (0.6 | )   
|Change in fair value of outstanding warrants         |                                                 |                          | 0.0   |      |       |  | 0.6   |      |       |  | 0.9  |     
|Investment losses and impairment                     |                                                 |                          | 0.0   |      |       |  | 0.0   |      |       |  | (0.7 | )   
|                                                     |                                                 |                          |       |      |       |  |       |      |      
|Loss before income taxes                             |                                                 |                          | (20.5 | )    |       |  | (10.3 | )    |       |  | (4.9 | )   
|Income tax provision (benefit)                       |                                                 |                          | 0.8   |      |       |  | 0.5   |      |       |  | (0.1 | )   
|Minority interest in loss of consolidated subsidiary |                                                 |                          | (1.5  | )    |       |  | (0.2  | )    |       |  | 0.0  |     
|                                                     |                                                 |                          |       |      |       |  |       |      |      
|Net loss                                             |                                                 |                          | (19.8 | )%   |       |  | (10.6 | )%   |       |  | (4.8 | )%  
|                                                     |                                                 |                          |       |      |       |  |       |      |      



| |        
| | -------
| | Revenue





34



---



##### Table of Contents











| |                
| | ---------------
| | Cost of Revenue



| |                        
| | -----------------------
| | Cost of license revenue





| |                                    
| | -----------------------------------
| | Amortization of acquired technology





| |                                    
| | -----------------------------------
| | Cost of support and service revenue



35



---



##### Table of Contents









| |                   
| | ------------------
| | Costs and Expenses



| |                    
| | -------------------
| | Sales and marketing









| |                         
| | ------------------------
| | Research and development





36



---



##### Table of Contents





| |                           
| | --------------------------
| | General and administrative







| |                                        
| | ---------------------------------------
| | Restructuring and other related charges





|                                            |  |            |         |        |              |   |          |            |  |   |             |   |  |       |        |   |       |   |      |   |  |   |         |  
|------------------------------------------- |  | ---------- | ------- | ------ | ------------ | - | -------- | ---------- |  | - | ----------- | - |  | ----- | ------ | - | ----- | - | ---- | - |  | - | ------- | -
|                                            |  |            |         | Excess |              |   | Employee |            |  |   |             |   |  |      
|                                            |  | Excess     |         |        | Facilities  |   |          | Separation |  |   | Asset       |   |  |       |        |  
|                                            |  | Facilities |         |        | Warrants     |   |          | Costs      |  |   | Impairments |   |  | Other |        |   | Total |  
|                                            |  |            |         |        |              |   |          |            |  |   |             |   |  |       |        |   |       |  
|Balance at December 31, 2001                |  | $          | 24,295  |        |              | $ |         |            |  | $ | 250         |   |  | $     |       |   |       | $ | 769  |   |  | $ | 25,314  |  
|Charge for the year ended December 31, 2002 |  |            | 4,361   |        |              |   | 920      |            |  |   | 1,266       |   |  |       | 2,204  |   |       |   | (260 | ) |  |   | 8,491   |  
|Cash payments and write-offs                |  |            | (16,522 | )      |              |   |         |            |  |   | (880        | ) |  |       | (2,204 | ) |       |   | (455 | ) |  |   | (20,061 | )
|                                            |  |            |         |        |              |   |          |            |  |   |             |   |  |       |        |   |       |  
|Balance at December 31, 2002                |  |            | 12,134  |        |              |   | 920      |            |  |   | 636         |   |  |       |       |   |       |   | 54   |   |  |   | 13,744  |  
|Charge for the year ended December 31, 2003 |  |            | 444     |        |              |   |         |            |  |   | 769         |   |  |       | 209    |   |       |   |     |   |  |   | 1,422   |  
|Cash payments and write-offs                |  |            | (9,486  | )      |              |   |         |            |  |   | (1,334      | ) |  |       | (209   | ) |       |   | (54  | ) |  |   | (11,083 | )
|Fair value adjustment                       |  |            |        |        |              |   | (355     | )          |  |   |            |   |  |       |       |   |       |   |     |   |  |   | (355    | )
|                                            |  |            |         |        |              |   |          |            |  |   |             |   |  |       |        |   |       |  
|Balance at December 31, 2003                |  |            | 3,092   |        |              |   | 565      |            |  |   | 71          |   |  |       |       |   |       |   |     |   |  |   | 3,728   |  
|Charge for the year ended December 31, 2004 |  |            | 155     |        |              |   |         |            |  |   | 287         |   |  |       |       |   |       |   |     |   |  |   | 442     |  
|Cash Payments                               |  |            | (2,516  | )      |              |   |         |            |  |   | (358        | ) |  |       |       |   |       |   |     |   |  |   | (2,874  | )
|Fair value adjustment                       |  |            |        |        |              |   | (513     | )          |  |   |            |   |  |       |       |   |       |   |     |   |  |   | (513    | )
|                                            |  |            |         |        |              |   |          |            |  |   |             |   |  |       |        |   |       |  
|Balance at December 31, 2004                |  | $          | 731     |        |              | $ | 52       |            |  | $ |            |   |  | $     |       |   |       | $ |     |   |  | $ | 783     |  
|                                            |  |            |         |        |              |   |          |            |  |   |             |   |  |       |        |   |       |  

37



---



##### Table of Contents









| |                                                
| | -----------------------------------------------
| | Amortization of acquisition-related intangibles





| |                  
| | -----------------
| | Severance charges





| |                                  
| | ---------------------------------
| | Deferred stock-based compensation



38



---



##### Table of Contents







| |                            
| | ---------------------------
| | Other Income (Expense), Net





| |                                             
| | --------------------------------------------
| | Change in Fair Value of Outstanding Warrants





| |                                 
| | --------------------------------
| | Investment Losses and Impairment





| |             
| | ------------
| | Income Taxes





| |                                                         
| | --------------------------------------------------------
| | Minority Interest in Loss of Consolidated
    Subsidiary



39



---



##### Table of Contents



Quarterly Results of Operations






|                                                              |                                                       |                                       |        |        |          |   |        |               |        |   |              |        |        |           |        |        |          |   |        |               |        |   |              |        |        |   |        |        |        |   |        |        |        | 
|------------------------------------------------------------- | ----------------------------------------------------- | ------------------------------------- | ------ | ------ | -------- | - | ------ | ------------- | ------ | - | ------------ | ------ | ------ | --------- | ------ | ------ | -------- | - | ------ | ------------- | ------ | - | ------------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                              |                                                       | Three Months Ended                    |       
|                                                              |                                                       |                                       |       
|                                                              |                                                       | March 31,                             |        |        | June 30, |   |        | September 30, |        |   | December 31, |        |        | March 31, |        |        | June 30, |   |        | September 30, |        |   | December 31, |       
|                                                              |                                                       | 2003                                  |        |        | 2003     |   |        | 2003          |        |   | 2003         |        |        | 2004      |        |        | 2004     |   |        | 2004          |        |   | 2004         |       
|                                                              |                                                       |                                       |        |        |          |   |        |               |        |   |              |        |        |           |        |        |          |   |        |               |        |   |              |       
|                                                              |                                                       | (In thousands, except per share data) |       
|                                                              |                                                       | (Unaudited)                           |       
|Consolidated Statement of Operations Data:                    |                                                       |                                       |        |        |          |   |        |               |        |   |              |        |        |           |        |        |          |   |        |               |        |   |              |        |        |   |        |        |        |   |        |       
|Revenue:                                                      |                                                       |                                       |        |        |          |   |        |               |        |   |              |        |        |           |        |        |          |   |        |               |        |   |              |        |        |   |        |        |        |   |        |       
|                                                              | License                                               |                                       | $      | 2,619  |          |   | $      | 3,122         |        |   | $            | 3,633  |        |           | $      | 2,769  |          |   | $      | 3,619         |        |   | $            | 3,561  |        |   | $      | 2,399  |        |   | $      | 4,087  |       
|                                                              | Support and service                                   |                                       |        | 11,588 |          |   |        | 12,688        |        |   |              | 11,767 |        |           |        | 10,187 |          |   |        | 10,625        |        |   |              | 11,232 |        |   |        | 11,274 |        |   |        | 10,837 |       
|                                                              |                                                       |                                       |        |        |          |   |        |               |        |   |              |        |        |           |        |        |          |   |        |               |        |   |              |       
|                                                              |                                                       | Total revenue                         |        |        | 14,207   |   |        |               | 15,810 |   |              |        | 15,400 |           |        |        | 12,956   |   |        |               | 14,244 |   |              |        | 14,793 |   |        |        | 13,673 |   |        |        | 14,924 | 
|Cost of revenue:                                              |                                                       |                                       |        |        |          |   |        |               |        |   |              |        |        |           |        |        |          |   |        |               |        |   |              |        |        |   |        |        |        |   |        |       
|                                                              | License                                               |                                       |        | 285    |          |   |        | 197           |        |   |              | 175    |        |           |        | 191    |          |   |        | 193           |        |   |              | 266    |        |   |        | 154    |        |   |        | 371    |       
|                                                              | Amortization of acquired technology                   |                                       |        | 84     |          |   |        | 84            |        |   |              | 84     |        |           |        | 3      |          |   |        |              |        |   |              |       |        |   |        |       |        |   |        |       |       
|                                                              | Support and service                                   |                                       |        | 5,435  |          |   |        | 5,443         |        |   |              | 5,251  |        |           |        | 4,582  |          |   |        | 4,456         |        |   |              | 4,515  |        |   |        | 4,674  |        |   |        | 4,969  |       
|                                                              |                                                       |                                       |        |        |          |   |        |               |        |   |              |        |        |           |        |        |          |   |        |               |        |   |              |       
|                                                              |                                                       | Total cost of revenue                 |        |        | 5,804    |   |        |               | 5,724  |   |              |        | 5,510  |           |        |        | 4,776    |   |        |               | 4,649  |   |              |        | 4,781  |   |        |        | 4,828  |   |        |        | 5,340  | 
|                                                              |                                                       |                                       |        |        |          |   |        |               |        |   |              |        |        |           |        |        |          |   |        |               |        |   |              |       
|Gross margin                                                  |                                                       |                                       | 8,403  |        |          |   | 10,086 |               |        |   | 9,890        |        |        |           | 8,180  |        |          |   | 9,595  |               |        |   | 10,012       |        |        |   | 8,845  |        |        |   | 9,584  |       
|Operating expenses:                                           |                                                       |                                       |        |        |          |   |        |               |        |   |              |        |        |           |        |        |          |   |        |               |        |   |              |        |        |   |        |        |        |   |        |       
|                                                              | Sales and marketing                                   |                                       |        | 6,483  |          |   |        | 5,082         |        |   |              | 4,460  |        |           |        | 4,604  |          |   |        | 4,777         |        |   |              | 4,604  |        |   |        | 4,956  |        |   |        | 5,017  |       
|                                                              | Research and development                              |                                       |        | 3,129  |          |   |        | 3,147         |        |   |              | 2,798  |        |           |        | 2,764  |          |   |        | 2,614         |        |   |              | 2,704  |        |   |        | 2,655  |        |   |        | 2,640  |       
|                                                              | General and administrative                            |                                       |        | 2,253  |          |   |        | 1,842         |        |   |              | 2,158  |        |           |        | 1,952  |          |   |        | 1,924         |        |   |              | 2,227  |        |   |        | 2,210  |        |   |        | 2,239  |       
|                                                              | Restructuring and other related charges               |                                       |        | 340    |          |   |        | 754           |        |   |              | 162    |        |           |        | 166    |          |   |        | 484           |        |   |              |       |        |   |        | (42    | )      |   |        |       |       
|                                                              | Amortization of other acquisition-related intangibles |                                       |        | 209    |          |   |        | 209           |        |   |              | 209    |        |           |        | 209    |          |   |        | 209           |        |   |              | 209    |        |   |        | 209    |        |   |        |       |       
|                                                              | Severance charges                                     |                                       |        |       |          |   |        |              |        |   |              |       |        |           |        |       |          |   |        |              |        |   |              |       |        |   |        |       |        |   |        | 996    |       
|                                                              | Stock-based compensation                              |                                       |        | 13     |          |   |        | 15            |        |   |              | 4      |        |           |        | 38     |          |   |        |              |        |   |              |       |        |   |        |       |        |   |        |       |       
|                                                              |                                                       |                                       |        |        |          |   |        |               |        |   |              |        |        |           |        |        |          |   |        |               |        |   |              |       
|                                                              |                                                       | Total operating expenses              |        |        | 12,427   |   |        |               | 11,049 |   |              |        | 9,791  |           |        |        | 9,733    |   |        |               | 10,008 |   |              |        | 9,744  |   |        |        | 9,988  |   |        |        | 10,892 | 
|                                                              |                                                       |                                       |        |        |          |   |        |               |        |   |              |        |        |           |        |        |          |   |        |               |        |   |              |       
|Income (loss) from operations                                 |                                                       |                                       | (4,024 | )      |          |   | (963   | )             |        |   | 99           |        |        |           | (1,553 | )      |          |   | (413   | )             |        |   | 268          |        |        |   | (1,143 | )      |        |   | (1,308 | )     
|Other income (expense), net                                   |                                                       |                                       | 9      |        |          |   | 111    |               |        |   | (117         | )      |        |           | 75     |        |          |   | (193   | )             |        |   | (121         | )      |        |   | (41    | )      |        |   | 15     |       
|Change in fair value of outstanding warrants                  |                                                       |                                       | 242    |        |          |   | 15     |               |        |   | (123         | )      |        |           | 221    |        |          |   | 122    |               |        |   | 90           |        |        |   | 102    |        |        |   | 199    |       
|Investment losses and impairment                              |                                                       |                                       |       |        |          |   |       |               |        |   |             |        |        |           |       |        |          |   |       |               |        |   |             |        |        |   |       |        |        |   | (403   | )     
|                                                              |                                                       |                                       |        |        |          |   |        |               |        |   |              |        |        |           |        |        |          |   |        |               |        |   |              |       
|Income (loss) before income taxes                             |                                                       |                                       | (3,773 | )      |          |   | (837   | )             |        |   | (141         | )      |        |           | (1,257 | )      |          |   | (484   | )             |        |   | 237          |        |        |   | (1,082 | )      |        |   | (1,497 | )     
|Income tax provision (benefit)                                |                                                       |                                       | (214   | )      |          |   | 135    |               |        |   | 86           |        |        |           | 257    |        |          |   | 56     |               |        |   | 93           |        |        |   | (61    | )      |        |   | (145   | )     
|Minority interest in income (loss) of consolidated subsidiary |                                                       |                                       | (157   | )      |          |   | (75    | )             |        |   | 32           |        |        |           | 82     |        |          |   | 55     |               |        |   | (31          | )      |        |   | (89    | )      |        |   | 50     |       
|                                                              |                                                       |                                       |        |        |          |   |        |               |        |   |              |        |        |           |        |        |          |   |        |               |        |   |              |       
|Net income (loss)                                             |                                                       | $                                     | (3,402 | )      |          | $ | (897   | )             |        | $ | (259         | )      |        | $         | (1,596 | )      |          | $ | (595   | )             |        | $ | 175          |        |        | $ | (932   | )      |        | $ | (1,402 | )     
|                                                              |                                                       |                                       |        |        |          |   |        |               |        |   |              |        |        |           |        |        |          |   |        |               |        |   |              |       
|Diluted net income (loss) per share(1)(2)                     |                                                       | $                                     | (0.27  | )      |          | $ | (0.07  | )             |        | $ | (0.02        | )      |        | $         | (0.11  | )      |          | $ | (0.04  | )             |        | $ | 0.01         |        |        | $ | (0.06  | )      |        | $ | (0.10  | )     
|Shares used in diluted share calculation(1)                   |                                                       |                                       | 12,698 |        |          |   | 13,238 |               |        |   | 13,902       |        |        |           | 13,914 |        |          |   | 13,982 |               |        |   | 14,615       |        |        |   | 14,554 |        |        |   | 14,554 |       
|Basic net income (loss) per share(1)(2)                       |                                                       | $                                     | (0.27  | )      |          | $ | (0.07  | )             |        | $ | (0.02        | )      |        | $         | (0.11  | )      |          | $ | (0.04  | )             |        | $ | 0.01         |        |        | $ | (0.06  | )      |        | $ | (0.10  | )     
|Shares used in basic share calculation(1)                     |                                                       |                                       | 12,698 |        |          |   | 13,238 |               |        |   | 13,902       |        |        |           | 13,914 |        |          |   | 13,982 |               |        |   | 14,465       |        |        |   | 14,554 |        |        |   | 14,554 |       

40



---



##### Table of Contents








|    |                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | See Notes 1 and 12 of Notes to Consolidated Financial
    Statements for an explanation of the method used to calculate
    basic and diluted net loss per share.                                                                        
|   
|(2) | The sum of the quarterly per share amounts may not equal per
    share amounts reported for year-to-date periods due to changes
    in the number of weighted-average shares outstanding and the
    effects of rounding for each period.

|                                                              |                                                       |                          |       |      |          |  |      |               |       |  |              |      |       |           |       |      |          |  |      |               |       |  |              |      |       |  |      |      |       |  |       |      |       | 
|------------------------------------------------------------- | ----------------------------------------------------- | ------------------------ | ----- | ---- | -------- |  | ---- | ------------- | ----- |  | ------------ | ---- | ----- | --------- | ----- | ---- | -------- |  | ---- | ------------- | ----- |  | ------------ | ---- | ----- |  | ---- | ---- | ----- |  | ----- | ---- | ----- | 
|                                                              |                                                       | Three Months Ended       |      
|                                                              |                                                       |                          |      
|                                                              |                                                       | March 31,                |       |      | June 30, |  |      | September 30, |       |  | December 31, |      |       | March 31, |       |      | June 30, |  |      | September 30, |       |  | December 31, |     
|                                                              |                                                       | 2003                     |       |      | 2003     |  |      | 2003          |       |  | 2003         |      |       | 2004      |       |      | 2004     |  |      | 2004          |       |  | 2004         |     
|                                                              |                                                       |                          |       |      |          |  |      |               |       |  |              |      |       |           |       |      |          |  |      |               |       |  |              |     
|Consolidated Statement of Operations Data:                    |                                                       |                          |       |      |          |  |      |               |       |  |              |      |       |           |       |      |          |  |      |               |       |  |              |      |       |  |      |      |       |  |       |     
|Revenue:                                                      |                                                       |                          |       |      |          |  |      |               |       |  |              |      |       |           |       |      |          |  |      |               |       |  |              |      |       |  |      |      |       |  |       |     
|                                                              | License                                               |                          |       | 18.4 | %        |  |      | 19.7          | %     |  |              | 23.6 | %     |           |       | 21.4 | %        |  |      | 25.4          | %     |  |              | 24.1 | %     |  |      | 17.5 | %     |  |       | 27.4 | %    
|                                                              | Support and service                                   |                          |       | 81.6 |          |  |      | 80.3          |       |  |              | 76.4 |       |           |       | 78.6 |          |  |      | 74.6          |       |  |              | 75.9 |       |  |      | 82.5 |       |  |       | 72.6 |      
|                                                              |                                                       |                          |       |      |          |  |      |               |       |  |              |      |       |           |       |      |          |  |      |               |       |  |              |     
|                                                              |                                                       | Total revenue            |       |      | 100.0    |  |      |               | 100.0 |  |              |      | 100.0 |           |       |      | 100.0    |  |      |               | 100.0 |  |              |      | 100.0 |  |      |      | 100.0 |  |       |      | 100.0 | 
|Cost of revenue:                                              |                                                       |                          |       |      |          |  |      |               |       |  |              |      |       |           |       |      |          |  |      |               |       |  |              |      |       |  |      |      |       |  |       |     
|                                                              | License                                               |                          |       | 2.0  |          |  |      | 1.3           |       |  |              | 1.1  |       |           |       | 1.5  |          |  |      | 1.3           |       |  |              | 1.8  |       |  |      | 1.1  |       |  |       | 2.5  |      
|                                                              | Amortization of acquired technology                   |                          |       | 0.6  |          |  |      | 0.5           |       |  |              | 0.6  |       |           |       | 0.0  |          |  |      | 0.0           |       |  |              | 0.0  |       |  |      | 0.0  |       |  |       | 0.0  |      
|                                                              | Support and service                                   |                          |       | 38.3 |          |  |      | 34.4          |       |  |              | 34.1 |       |           |       | 35.4 |          |  |      | 31.3          |       |  |              | 30.5 |       |  |      | 34.2 |       |  |       | 33.3 |      
|                                                              |                                                       |                          |       |      |          |  |      |               |       |  |              |      |       |           |       |      |          |  |      |               |       |  |              |     
|                                                              |                                                       | Total cost of revenue    |       |      | 40.9     |  |      |               | 36.2  |  |              |      | 35.8  |           |       |      | 36.9     |  |      |               | 32.6  |  |              |      | 32.3  |  |      |      | 35.3  |  |       |      | 35.8  | 
|                                                              |                                                       |                          |       |      |          |  |      |               |       |  |              |      |       |           |       |      |          |  |      |               |       |  |              |     
|Gross margin                                                  |                                                       |                          | 59.1  |      |          |  | 63.8 |               |       |  | 64.2         |      |       |           | 63.1  |      |          |  | 67.4 |               |       |  | 67.7         |      |       |  | 64.7 |      |       |  | 64.2  |     
|Operating expenses:                                           |                                                       |                          |       |      |          |  |      |               |       |  |              |      |       |           |       |      |          |  |      |               |       |  |              |      |       |  |      |      |       |  |       |     
|                                                              | Sales and marketing                                   |                          |       | 45.6 |          |  |      | 32.1          |       |  |              | 29.0 |       |           |       | 35.5 |          |  |      | 33.5          |       |  |              | 31.1 |       |  |      | 36.2 |       |  |       | 33.6 |      
|                                                              | Research and development                              |                          |       | 22.0 |          |  |      | 19.9          |       |  |              | 18.2 |       |           |       | 21.3 |          |  |      | 18.4          |       |  |              | 18.3 |       |  |      | 19.4 |       |  |       | 17.7 |      
|                                                              | General and administrative                            |                          |       | 15.9 |          |  |      | 11.7          |       |  |              | 14.0 |       |           |       | 15.1 |          |  |      | 13.5          |       |  |              | 15.1 |       |  |      | 16.2 |       |  |       | 15.0 |      
|                                                              | Restructuring and other related charges               |                          |       | 2.4  |          |  |      | 4.8           |       |  |              | 1.0  |       |           |       | 1.3  |          |  |      | 3.4           |       |  |              | 0.0  |       |  |      | (0.3 | )     |  |       | 0.0  |      
|                                                              | Amortization of other acquisition-related intangibles |                          |       | 1.5  |          |  |      | 1.3           |       |  |              | 1.4  |       |           |       | 1.6  |          |  |      | 1.5           |       |  |              | 1.4  |       |  |      | 1.5  |       |  |       | 0.0  |      
|                                                              | Severance charges                                     |                          |       | 0.0  |          |  |      | 0.0           |       |  |              | 0.0  |       |           |       | 0.0  |          |  |      | 0.0           |       |  |              | 0.0  |       |  |      | 0.0  |       |  |       | 6.7  |      
|                                                              | Stock-based compensation                              |                          |       | 0.1  |          |  |      | 0.1           |       |  |              | 0.0  |       |           |       | 0.3  |          |  |      | 0.0           |       |  |              | 0.0  |       |  |      | 0.0  |       |  |       | 0.0  |      
|                                                              |                                                       |                          |       |      |          |  |      |               |       |  |              |      |       |           |       |      |          |  |      |               |       |  |              |     
|                                                              |                                                       | Total operating expenses |       |      | 87.5     |  |      |               | 69.9  |  |              |      | 63.6  |           |       |      | 75.1     |  |      |               | 70.3  |  |              |      | 65.9  |  |      |      | 73.0  |  |       |      | 73.0  | 
|                                                              |                                                       |                          |       |      |          |  |      |               |       |  |              |      |       |           |       |      |          |  |      |               |       |  |              |     
|Income (loss) from operations                                 |                                                       |                          | (28.4 | )    |          |  | (6.1 | )             |       |  | 0.6          |      |       |           | (12.0 | )    |          |  | (2.9 | )             |       |  | 1.8          |      |       |  | (8.3 | )    |       |  | (8.8  | )   
|Other income (expense), net                                   |                                                       |                          | 0.1   |      |          |  | 0.7  |               |       |  | (0.7         | )    |       |           | 0.6   |      |          |  | (1.4 | )             |       |  | (0.8         | )    |       |  | (0.3 | )    |       |  | 0.1   |     
|Change in fair value of outstanding warrants                  |                                                       |                          | 1.7   |      |          |  | 0.1  |               |       |  | (0.8         | )    |       |           | 1.7   |      |          |  | 0.9  |               |       |  | 0.6          |      |       |  | 0.7  |      |       |  | 1.3   |     
|Investment losses and impairment                              |                                                       |                          | 0.0   |      |          |  | 0.0  |               |       |  | 0.0          |      |       |           | 0.0   |      |          |  | 0.0  |               |       |  | 0.0          |      |       |  | 0.0  |      |       |  | (2.6  | )   
|                                                              |                                                       |                          |       |      |          |  |      |               |       |  |              |      |       |           |       |      |          |  |      |               |       |  |              |     
|Income (loss) before income taxes                             |                                                       |                          | (26.6 | )    |          |  | (5.3 | )             |       |  | (0.9         | )    |       |           | (9.7  | )    |          |  | (3.4 | )             |       |  | 1.6          |      |       |  | (7.9 | )    |       |  | (10.0 | )   
|Income tax provision (benefit)                                |                                                       |                          | (1.5  | )    |          |  | 0.9  |               |       |  | 0.6          |      |       |           | 2.0   |      |          |  | 0.4  |               |       |  | 0.5          |      |       |  | (0.4 | )    |       |  | (1.0  | )   
|Minority interest in income (loss) of consolidated subsidiary |                                                       |                          | (1.1  | )    |          |  | (0.5 | )             |       |  | 0.2          |      |       |           | 0.6   |      |          |  | 0.4  |               |       |  | (0.1         | )    |       |  | (0.7 | )    |       |  | 0.4   |     
|                                                              |                                                       |                          |       |      |          |  |      |               |       |  |              |      |       |           |       |      |          |  |      |               |       |  |              |     
|Net income (loss)                                             |                                                       |                          | (24.0 | )%   |          |  | (5.7 | )%            |       |  | (1.7         | )%   |       |           | (12.3 | )%   |          |  | (4.2 | )%            |       |  | 1.2          | %    |       |  | (6.8 | )%   |       |  | (9.4  | )%  
|                                                              |                                                       |                          |       |      |          |  |      |               |       |  |              |      |       |           |       |      |          |  |      |               |       |  |              |     

41



---



##### Table of Contents



Liquidity and Capital Resources








| |                               
| | ------------------------------
| | Off-balance Sheet Arrangements





| |                                              
| | ---------------------------------------------
| | Tabular Disclosure of Contractual Obligations



|                                                 |  |      |       |         |      |   |         |      |  |   |            |  |  |       |        |  |  |   |        | 
|------------------------------------------------ |  | ---- | ----- | ------- | ---- | - | ------- | ---- |  | - | ---------- |  |  | ----- | ------ |  |  | - | ------ | 
|                                                 |  |      |       | 2006 to |      |   | 2008 to |      |  |   |            | 
|                                                 |  | 2005 |       |         | 2007 |   |         | 2009 |  |   | Thereafter |  |  | Total |       
|                                                 |  |      |       |         |      |   |         |      |  |   |            |  |  |       |       
|Operating lease obligations not in restructuring |  | $    | 3,411 |         |      | $ | 5,411   |      |  | $ | 4,758      |  |  | $     | 16,008 |  |  | $ | 29,588 | 
|Operating lease obligations in restructuring     |  |      | 1,574 |         |      |   | 2,188   |      |  |   | 1,793      |  |  |       |       |  |  |   | 5,555  | 
|Purchase technology obligation                   |  |      | 1,000 |         |      |   |        |      |  |   |           |  |  |       |       |  |  |   | 1,000  | 
|Term loan obligation                             |  |      | 167   |         |      |   | 222     |      |  |   |           |  |  |       |       |  |  |   | 389    | 
|Third-party royalty commitments                  |  |      | 155   |         |      |   | 500     |      |  |   | 500        |  |  |       |       |  |  |   | 1,155  | 
|                                                 |  |      |       |         |      |   |         |      |  |   |            |  |  |       |       
|Total fixed commitments                          |  | $    | 6,307 |         |      | $ | 8,321   |      |  | $ | 7,051      |  |  | $     | 16,008 |  |  | $ | 37,687 | 
|                                                 |  |      |       |         |      |   |         |      |  |   |            |  |  |       |       



42



---



##### Table of Contents











43



---



##### Table of Contents









Recent Accounting Pronouncements









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



Interest Rate Risk




Foreign Currency Risk




44



---



##### Table of Contents







45



---



##### Table of Contents








|        |                                                             
|------- | ------------------------------------------------------------
|ITEM 8. | CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
    DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


|                                                                           |  |      |    | 
|-------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                           |  | Page |   
|                                                                           |  |      |   
|Reports of Independent Registered Public
    Accounting Firm               |  |      | 47 | 
|Consolidated Balance Sheets                                                |  |      | 49 | 
|Consolidated Statements of Operations                                      |  |      | 50 | 
|Consolidated Statements of
    Shareholders Equity and Comprehensive Loss |  |      | 51 | 
|Consolidated Statements of Cash Flows                                      |  |      | 52 | 
|Notes to Consolidated Financial
    Statements                             |  |      | 53 | 

46



---



##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






Internal Control 
Integrated Framework








Internal Control  Integrated
Framework Internal Control  Integrated Framework










47



---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM












Internal Control 
Integrated Framework








48



---



##### Table of Contents



ONYX SOFTWARE CORPORATION





CONSOLIDATED BALANCE SHEETS


|                                                       |                                                                                                               |                           |                                            |          |        |        |        |          |        |        | 
|------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------- | ------------------------- | ------------------------------------------ | -------- | ------ | ------ | ------ | -------- | ------ | ------ | 
|                                                       |                                                                                                               | December 31,              |                                           
|                                                       |                                                                                                               |                           |                                           
|                                                       |                                                                                                               | 2003                      |                                            |          | 2004   |       
|                                                       |                                                                                                               |                           |                                            |          |        |       
|                                                       |                                                                                                               | (In thousands, except     |                                           
|                                                       |                                                                                                               | share and per share data) |                                           
|ASSETS                                                
|Current assets:                                        |                                                                                                               |                           |                                            |          |        |        |        |         
|                                                       | Cash and cash equivalents                                                                                     |                           | $                                          | 10,127   |        |        | $      | 14,393   |       
|                                                       | Restricted cash                                                                                               |                           |                                            | 1,723    |        |        |        |         |       
|                                                       | Accounts receivable, less allowances of $488 in 2003 and $494 in
    2004                                     |                           |                                            | 12,245   |        |        |        | 11,220   |       
|                                                       | Deferred tax asset                                                                                            |                           |                                            | 362      |        |        |        | 89       |       
|                                                       | Prepaid expenses and other                                                                                    |                           |                                            | 1,666    |        |        |        | 1,968    |       
|                                                       |                                                                                                               |                           |                                            |          |        |       
|Total current assets                                   |                                                                                                               |                           | 26,123                                     |          |        |        | 27,670 |         
|Property and equipment, net                            |                                                                                                               |                           | 4,277                                      |          |        |        | 3,711  |         
|Purchased technology, net                              |                                                                                                               |                           |                                           |          |        |        | 4,095  |         
|Other intangibles, net                                 |                                                                                                               |                           | 675                                        |          |        |        |       |         
|Goodwill, net                                          |                                                                                                               |                           | 9,508                                      |          |        |        | 10,306 |         
|Deferred tax asset                                     |                                                                                                               |                           |                                           |          |        |        | 35     |         
|Other assets                                           |                                                                                                               |                           | 842                                        |          |        |        | 450    |         
|                                                       |                                                                                                               |                           |                                            |          |        |       
|                                                       |                                                                                                               | Total assets              |                                            | $        | 41,425 |        |        | $        | 46,267 |       
|                                                       |                                                                                                               |                           |                                            |          |        |       
|                                                      
|LIABILITIES AND SHAREHOLDERS EQUITY                  
|Current liabilities:                                   |                                                                                                               |                           |                                            |          |        |        |        |         
|                                                       | Accounts payable                                                                                              |                           | $                                          | 883      |        |        | $      | 1,205    |       
|                                                       | Salary and benefits payable                                                                                   |                           |                                            | 946      |        |        |        | 1,937    |       
|                                                       | Accrued liabilities                                                                                           |                           |                                            | 1,536    |        |        |        | 2,453    |       
|                                                       | Income taxes payable                                                                                          |                           |                                            | 770      |        |        |        | 217      |       
|                                                       | Restructuring-related liabilities                                                                             |                           |                                            | 2,758    |        |        |        | 731      |       
|                                                       | Current portion of term loan                                                                                  |                           |                                            |         |        |        |        | 167      |       
|                                                       | Deferred revenue                                                                                              |                           |                                            | 15,053   |        |        |        | 17,761   |       
|                                                       |                                                                                                               |                           |                                            |          |        |       
|Total current liabilities                              |                                                                                                               |                           | 21,946                                     |          |        |        | 24,471 |         
|Long-term accrued liabilities                          |                                                                                                               |                           | 544                                        |          |        |        | 464    |         
|Long-term deferred revenue                             |                                                                                                               |                           | 1,025                                      |          |        |        | 1,923  |         
|Long-term restructuring-related liabilities            |                                                                                                               |                           | 405                                        |          |        |        |       |         
|Long-term restructuring-related liabilities  warrants |                                                                                                               |                           | 565                                        |          |        |        | 52     |         
|Long-term purchased technology obligation              |                                                                                                               |                           |                                           |          |        |        | 1,842  |         
|Long-term deferred rent                                |                                                                                                               |                           | 293                                        |          |        |        | 450    |         
|Term loan                                              |                                                                                                               |                           |                                           |          |        |        | 222    |         
|Deferred tax liabilities                               |                                                                                                               |                           | 229                                        |          |        |        |       |         
|Minority interest in joint venture                     |                                                                                                               |                           | 119                                        |          |        |        | 106    |         
|Commitments and contingencies                          |                                                                                                               |                           |                                            |          |        |        |        |         
|Shareholders equity:                                  |                                                                                                               |                           |                                            |          |        |        |        |         
|                                                       | Common stock, $0.01 par value:                                                                                |                           |                                            |          |        |        |        |          |       
|                                                       | Authorized shares  80,000,000; issued and outstanding
    shares  13,969,503 in 2003 and 14,615,823 in 2004 |                           |                                            | 142,682  |        |        |        | 144,736  |       
|                                                       | Accumulated deficit                                                                                           |                           |                                            | (128,215 | )      |        |        | (130,969 | )     
|                                                       | Accumulated other comprehensive income                                                                        |                           |                                            | 1,832    |        |        |        | 2,970    |       
|                                                       |                                                                                                               |                           |                                            |          |        |       
|                                                       |                                                                                                               |                           | Total shareholders equity                 |          |        | 16,299 |        |          |        | 16,737 | 
|                                                       |                                                                                                               |                           |                                            |          |        |       
|                                                       |                                                                                                               |                           | Total liabilities and shareholders equity |          | $      | 41,425 |        |          | $      | 46,267 | 
|                                                       |                                                                                                               |                           |                                            |          |        |       



49



---



##### Table of Contents



ONYX SOFTWARE CORPORATION





CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                       |                                                 |                                       |         |        |        |   |        |        |        |   |        |        |        | 
|---------------------------------------------------------------------- | ----------------------------------------------- | ------------------------------------- | ------- | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                                       |                                                 | Year Ended December 31,               |        
|                                                                       |                                                 |                                       |        
|                                                                       |                                                 | 2002                                  |         |        | 2003   |   |        | 2004   |       
|                                                                       |                                                 |                                       |         |        |        |   |        |        |       
|                                                                       |                                                 | (In thousands, except per share data) |        
|Revenue:                                                               |                                                 |                                       |         |        |        |   |        |        |        |   |        |       
|                                                                       | License                                         |                                       | $       | 22,633 |        |   | $      | 12,143 |        |   | $      | 13,666 |       
|                                                                       | Support and service                             |                                       |         | 46,751 |        |   |        | 46,230 |        |   |        | 43,968 |       
|                                                                       |                                                 |                                       |         |        |        |   |        |        |       
|                                                                       |                                                 | Total revenue                         |         |        | 69,384 |   |        |        | 58,373 |   |        |        | 57,634 | 
|Cost of revenue:                                                       |                                                 |                                       |         |        |        |   |        |        |        |   |        |       
|                                                                       | License                                         |                                       |         | 1,140  |        |   |        | 848    |        |   |        | 984    |       
|                                                                       | Amortization of acquired technology             |                                       |         | 498    |        |   |        | 255    |        |   |        |       |       
|                                                                       | Support and service                             |                                       |         | 20,128 |        |   |        | 20,711 |        |   |        | 18,614 |       
|                                                                       |                                                 |                                       |         |        |        |   |        |        |       
|                                                                       |                                                 | Total cost of revenue                 |         |        | 21,766 |   |        |        | 21,814 |   |        |        | 19,598 | 
|                                                                       |                                                 |                                       |         |        |        |   |        |        |       
|Gross margin                                                           |                                                 |                                       | 47,618  |        |        |   | 36,559 |        |        |   | 38,036 |       
|Operating expenses:                                                    |                                                 |                                       |         |        |        |   |        |        |        |   |        |       
|                                                                       | Sales and marketing                             |                                       |         | 27,947 |        |   |        | 20,629 |        |   |        | 19,354 |       
|                                                                       | Research and development                        |                                       |         | 14,745 |        |   |        | 11,838 |        |   |        | 10,613 |       
|                                                                       | General and administrative                      |                                       |         | 9,449  |        |   |        | 8,205  |        |   |        | 8,600  |       
|                                                                       | Restructuring and other related charges         |                                       |         | 8,491  |        |   |        | 1,422  |        |   |        | 442    |       
|                                                                       | Amortization of acquisition-related intangibles |                                       |         | 836    |        |   |        | 836    |        |   |        | 627    |       
|                                                                       | Severance charges                               |                                       |         |       |        |   |        |       |        |   |        | 996    |       
|                                                                       | Stock-based compensation                        |                                       |         | 248    |        |   |        | 70     |        |   |        |       |       
|                                                                       |                                                 |                                       |         |        |        |   |        |        |       
|                                                                       |                                                 | Total operating expenses              |         |        | 61,716 |   |        |        | 43,000 |   |        |        | 40,632 | 
|                                                                       |                                                 |                                       |         |        |        |   |        |        |       
|Loss from operations                                                   |                                                 |                                       | (14,098 | )      |        |   | (6,441 | )      |        |   | (2,596 | )     
|Other income (expense), net                                            |                                                 |                                       | (119    | )      |        |   | 78     |        |        |   | (340   | )     
|Change in fair value of outstanding warrants                           |                                                 |                                       |        |        |        |   | 355    |        |        |   | 513    |       
|Investment losses and impairment                                       |                                                 |                                       |        |        |        |   |       |        |        |   | (403   | )     
|                                                                       |                                                 |                                       |         |        |        |   |        |        |       
|Loss before income taxes                                               |                                                 |                                       | (14,217 | )      |        |   | (6,008 | )      |        |   | (2,826 | )     
|Income tax provision (benefit)                                         |                                                 |                                       | 585     |        |        |   | 264    |        |        |   | (57    | )     
|Minority interest in loss of consolidated subsidiary                   |                                                 |                                       | (1,032  | )      |        |   | (118   | )      |        |   | (15    | )     
|                                                                       |                                                 |                                       |         |        |        |   |        |        |       
|Net loss                                                               |                                                 | $                                     | (13,770 | )      |        | $ | (6,154 | )      |        | $ | (2,754 | )     
|                                                                       |                                                 |                                       |         |        |        |   |        |        |       
|Basic and diluted net loss per share                                   |                                                 | $                                     | (1.10   | )      |        | $ | (0.46  | )      |        | $ | (0.19  | )     
|Shares used in calculation of basic and diluted net loss per
    share |                                                 |                                       | 12,481  |        |        |   | 13,442 |        |        |   | 14,364 |       



50



---



##### Table of Contents



ONYX SOFTWARE CORPORATION





CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND


COMPREHENSIVE LOSS


|                             |                                                                                        |                                   |            |           |             |   |         |              |   |       |               |     |       |               |          |   |         |   |        |   |       |   |         |        |   | 
|---------------------------- | -------------------------------------------------------------------------------------- | --------------------------------- | ---------- | --------- | ----------- | - | ------- | ------------ | - | ----- | ------------- | --- | ----- | ------------- | -------- | - | ------- | - | ------ | - | ----- | - | ------- | ------ | - | 
|                             |                                                                                        |                                   |            |           |             |   |         | Accumulated  |   |       |              
|                             |                                                                                        | Common Stock                      |            |           | Deferred    |   |         |              |   | Other |               |     | Total |              
|                             |                                                                                        |                                   |            |           | Stock-Based |   |         | Accumulated  |   |       | Comprehensive |     |       | Shareholders |         
|                             |                                                                                        | Shares                            |            |           | Amount      |   |         | Compensation |   |       | Deficit       |     |       | Gain (Loss)   |          |   | Equity  |  
|                             |                                                                                        |                                   |            |           |             |   |         |              |   |       |               |     |       |               |          |   |         |  
|                             |                                                                                        | (In thousands, except share data) |           
|Balance at January 1, 2002   |                                                                                        |                                   | 10,987,468 |           |             | $ | 118,557 |              |   | $     | (809          | )   |       | $             | (108,291 | ) |         | $ | (1,322 | ) |       | $ | 8,135   |       
|                             | Amortization of deferred stock-based compensation                                      |                                   |            |          |             |   |         |             |   |       |               | 248 |       |               |          |  |         |   |        |  |       |   |         | 248    |  
|                             | Reversal of deferred stock-based compensation associated with
    terminated employees |                                   |            |          |             |   |         | (477         | ) |       |               | 477 |       |               |          |  |         |   |        |  |       |   |         |       |  
|                             | Exercise of stock options                                                              |                                   |            | 47,224    |             |   |         | 240          |   |       |               |    |       |               |          |  |         |   |        |  |       |   |         | 240    |  
|                             | Issuance of common stock under ESPP                                                    |                                   |            | 77,891    |             |   |         | 558          |   |       |               |    |       |               |          |  |         |   |        |  |       |   |         | 558    |  
|                             | Proceeds from public offering, net of offering costs of $1,606                         |                                   |            | 1,581,250 |             |   |         | 20,531       |   |       |               |    |       |               |          |  |         |   |        |  |       |   |         | 20,531 |  
|                             | Issuance of common stock to vendor for services rendered                               |                                   |            | 2,906     |             |   |         | 50           |   |       |               |    |       |               |          |  |         |   |        |  |       |   |         | 50     |  
|                             | Comprehensive loss:                                                                    |                                   |            |           |             |   |         |              |   |       |               |     |       |               |          |   |         |   |        |   |       |   |         |        |  
|                             |                                                                                        | Foreign currency translation gain |            |           |            |   |         |              |  |       |               |     |      |               |          |   |        |   |        |   | 836   |   |         |        |   | 
|                             |                                                                                        | Net loss                          |            |           |            |   |         |              |  |       |               |     |      |               |          |   | (13,770 | ) |        |   |      |   |         |        |   | 
|Total comprehensive loss     |                                                                                        |                                   |            |           |             |   |         |              |   |       |               |     |       |               |          |   |         |   |        |   |       |   | (12,934 | )     
|                             |                                                                                        |                                   |            |           |             |   |         |              |   |       |               |     |       |               |          |   |         |  
|Balance at December 31, 2002 |                                                                                        |                                   | 12,696,739 |           |             |   | 139,459 |              |   |       | (84           | )   |       |               | (122,061 | ) |         |   | (486   | ) |       |   | 16,828  |       
|                             | Amortization of deferred stock-based compensation                                      |                                   |            |          |             |   |         |             |   |       |               | 30  |       |               |          |  |         |   |        |  |       |   |         | 30     |  
|                             | Reversal of deferred stock-based compensation associated with
    terminated employees |                                   |            |          |             |   |         | (54          | ) |       |               | 54  |       |               |          |  |         |   |        |  |       |   |         |       |  
|                             | Exercise of stock options                                                              |                                   |            | 20,643    |             |   |         | 56           |   |       |               |    |       |               |          |  |         |   |        |  |       |   |         | 56     |  
|                             | Issuance of common stock under ESPP                                                    |                                   |            | 109,340   |             |   |         | 366          |   |       |               |    |       |               |          |  |         |   |        |  |       |   |         | 366    |  
|                             | Proceeds from private placement, net of offering costs of $200                         |                                   |            | 1,135,697 |             |   |         | 2,815        |   |       |               |    |       |               |          |  |         |   |        |  |       |   |         | 2,815  |  
|                             | Issuance of options to third-party consultant                                          |                                   |            |          |             |   |         | 2            |   |       |               |    |       |               |          |  |         |   |        |  |       |   |         | 2      |  
|                             | Issuance of common stock to third-party consultant                                     |                                   |            | 7,084     |             |   |         | 38           |   |       |               |    |       |               |          |  |         |   |        |  |       |   |         | 38     |  
|                             | Comprehensive loss:                                                                    |                                   |            |           |             |   |         |              |   |       |               |     |       |               |          |   |         |   |        |   |       |   |         |        |  
|                             |                                                                                        | Foreign currency translation gain |            |           |            |   |         |              |  |       |               |     |      |               |          |   |        |   |        |   | 2,318 |   |         |        |   | 
|                             |                                                                                        | Net loss                          |            |           |            |   |         |              |  |       |               |     |      |               |          |   | (6,154  | ) |        |   |      |   |         |        |   | 
|Total comprehensive loss     |                                                                                        |                                   |            |           |             |   |         |              |   |       |               |     |       |               |          |   |         |   |        |   |       |   | (3,836  | )     
|                             |                                                                                        |                                   |            |           |             |   |         |              |   |       |               |     |       |               |          |   |         |  
|Balance at December 31, 2003 |                                                                                        |                                   | 13,969,503 |           |             |   | 142,682 |              |   |       |              |     |       |               | (128,215 | ) |         |   | 1,832  |   |       |   | 16,299  |       
|                             | Exercise of stock options                                                              |                                   |            | 28,972    |             |   |         | 46           |   |       |               |    |       |               |          |  |         |   |        |  |       |   |         | 46     |  
|                             | Issuance of common stock under ESPP                                                    |                                   |            | 112,457   |             |   |         | 342          |   |       |               |    |       |               |          |  |         |   |        |  |       |   |         | 342    |  
|                             | Common stock issued in connection with purchased technology                            |                                   |            | 504,891   |             |   |         | 1,666        |   |       |               |    |       |               |          |  |         |   |        |  |       |   |         | 1,666  |  
|                             | Comprehensive loss:                                                                    |                                   |            |           |             |   |         |              |   |       |               |     |       |               |          |   |         |   |        |   |       |   |         |        |  
|                             |                                                                                        | Foreign currency translation gain |            |           |            |   |         |              |  |       |               |     |      |               |          |   |        |   |        |   | 1,138 |   |         |        |   | 
|                             |                                                                                        | Net loss                          |            |           |            |   |         |              |  |       |               |     |      |               |          |   | (2,754  | ) |        |   |      |   |         |        |   | 
|                             | Total comprehensive loss                                                               |                                   |            |           |             |   |         |              |   |       |               |     |       |               |          |   |         |   |        |   |       |   |         | (1,616 | )
|                             |                                                                                        |                                   |            |           |             |   |         |              |   |       |               |     |       |               |          |   |         |  
|Balance at December 31, 2004 |                                                                                        |                                   | 14,615,823 |           |             | $ | 144,736 |              |   | $     |              |     |       | $             | (130,969 | ) |         | $ | 2,970  |   |       | $ | 16,737  |       
|                             |                                                                                        |                                   |            |           |             |   |         |              |   |       |               |     |       |               |          |   |         |  



51



---



##### Table of Contents



ONYX SOFTWARE CORPORATION





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                   |                                                                                 |                                                      |                                          |                                                     |        |         |         |        |       |        |        |        |        |        |       | 
|---------------------------------- | ------------------------------------------------------------------------------- | ---------------------------------------------------- | ---------------------------------------- | --------------------------------------------------- | ------ | ------- | ------- | ------ | ----- | ------ | ------ | ------ | ------ | ------ | ----- | 
|                                   |                                                                                 | Year Ended December 31,                              |                                         
|                                   |                                                                                 |                                                      |                                         
|                                   |                                                                                 | 2002                                                 |                                          |                                                     | 2003   |         |         | 2004   |      
|                                   |                                                                                 |                                                      |                                          |                                                     |        |         |         |        |      
|                                   |                                                                                 | (In thousands)                                       |                                         
|OPERATING ACTIVITIES               |                                                                                 |                                                      |                                          |                                                     |        |         |         |        |       |        |        |       
|                                   | Net loss                                                                        |                                                      | $                                        | (13,770                                             | )      |         | $       | (6,154 | )     |        | $      | (2,754 | )     
|                                   | Adjustments to reconcile net loss to net cash used in operating
    activities: |                                                      |                                          |                                                     |        |         |         |        |       |        |        |        |       
|                                   |                                                                                 | Depreciation and amortization                        |                                          |                                                     | 6,505  |         |         |        | 4,182 |        |        |        | 2,323  |       
|                                   |                                                                                 | Imputed interest expense                             |                                          |                                                     |       |         |         |        |      |        |        |        | 82     |       
|                                   |                                                                                 | Deferred income taxes                                |                                          |                                                     | (461   | )       |         |        | (357  | )      |        |        | 9      |       
|                                   |                                                                                 | Noncash stock-based compensation expense             |                                          |                                                     | 248    |         |         |        | 70    |        |        |        |       |       
|                                   |                                                                                 | Change in fair value of outstanding warrants         |                                          |                                                     |       |         |         |        | (355  | )      |        |        | (513   | )     
|                                   |                                                                                 | Impairment on property and equipment                 |                                          |                                                     | 2,290  |         |         |        | 284   |        |        |        |       |       
|                                   |                                                                                 | Minority interest in loss of consolidated subsidiary |                                          |                                                     | (1,032 | )       |         |        | (118  | )      |        |        | (15    | )     
|                                   |                                                                                 | Investment losses and impairment                     |                                          |                                                     |       |         |         |        |      |        |        |        | 403    |       
|                                   |                                                                                 | Changes in operating assets and liabilities:         |                                          |                                                     |        |         |         |        |       |        |        |        |        |       
|                                   |                                                                                 |                                                      | Accounts receivable                      |                                                     |        | 5,887   |         |        |       | 2,594  |        |        |        | 1,179  |      
|                                   |                                                                                 |                                                      | Prepaid expenses and other assets        |                                                     |        | (494    | )       |        |       | 1,951  |        |        |        | (313   | )    
|                                   |                                                                                 |                                                      | Accounts payable and accrued liabilities |                                                     |        | (1,812  | )       |        |       | (2,104 | )      |        |        | 2,047  |      
|                                   |                                                                                 |                                                      | Restructuring-related liabilities        |                                                     |        | (11,570 | )       |        |       | (9,661 | )      |        |        | (2,432 | )    
|                                   |                                                                                 |                                                      | Deferred revenue                         |                                                     |        | (2,933  | )       |        |       | (180   | )      |        |        | 3,606  |      
|                                   |                                                                                 |                                                      | Income taxes                             |                                                     |        | (35     | )       |        |       | 110    |        |        |        | (553   | )    
|                                   |                                                                                 |                                                      |                                          |                                                     |        |         |         |        |      
|                                   |                                                                                 |                                                      |                                          | Net cash provided by (used in) operating activities |        |         | (17,177 | )      |       |        | (9,738 | )      |        |        | 3,069 | 
|INVESTING ACTIVITIES               |                                                                                 |                                                      |                                          |                                                     |        |         |         |        |       |        |        |       
|                                   | Restricted cash                                                                 |                                                      |                                          | (2,238                                              | )      |         |         | 515    |       |        |        | 1,723  |       
|                                   | Acquisition of purchased technology                                             |                                                      |                                          |                                                    |        |         |         |       |       |        |        | (400   | )     
|                                   | Proceeds on disposal of equipment                                               |                                                      |                                          | 204                                                 |        |         |         |       |       |        |        |       |       
|                                   | Purchases of property and equipment, net                                        |                                                      |                                          | (1,255                                              | )      |         |         | (1,198 | )     |        |        | (1,130 | )     
|                                   |                                                                                 |                                                      |                                          |                                                     |        |         |         |        |      
|                                   |                                                                                 |                                                      |                                          | Net cash provided by (used in) investing activities |        |         | (3,289  | )      |       |        | (683   | )      |        |        | 193   | 
|FINANCING ACTIVITIES               |                                                                                 |                                                      |                                          |                                                     |        |         |         |        |       |        |        |       
|                                   | Net proceeds from sale of common stock                                          |                                                      |                                          | 20,531                                              |        |         |         |       |       |        |        |       |       
|                                   | Net proceeds from private placement                                             |                                                      |                                          |                                                    |        |         |         | 2,815  |       |        |        |       |       
|                                   | Proceeds from exercise of stock options                                         |                                                      |                                          | 240                                                 |        |         |         | 56     |       |        |        | 46     |       
|                                   | Proceeds from shares issued through employee stock purchase plan                |                                                      |                                          | 558                                                 |        |         |         | 366    |       |        |        | 342    |       
|                                   | Proceeds from term loan                                                         |                                                      |                                          |                                                    |        |         |         |       |       |        |        | 500    |       
|                                   | Payments on term loan                                                           |                                                      |                                          |                                                    |        |         |         |       |       |        |        | (111   | )     
|                                   | Payments on capital lease obligations                                           |                                                      |                                          | (164                                                | )      |         |         | (257   | )     |        |        |       |       
|                                   |                                                                                 |                                                      |                                          |                                                     |        |         |         |        |      
|                                   |                                                                                 |                                                      |                                          | Net cash provided by financing activities           |        |         | 21,165  |        |       |        | 2,980  |        |        |        | 777   | 
|                                   | Effects of exchange rate changes on cash                                        |                                                      |                                          | 474                                                 |        |         |         | 527    |       |        |        | 227    |       
|                                   |                                                                                 |                                                      |                                          |                                                     |        |         |         |        |      
|                                   | Net increase (decrease) in cash and cash equivalents                            |                                                      |                                          | 1,173                                               |        |         |         | (6,914 | )     |        |        | 4,266  |       
|                                   | Cash and cash equivalents at beginning of year                                  |                                                      |                                          | 15,868                                              |        |         |         | 17,041 |       |        |        | 10,127 |       
|                                   |                                                                                 |                                                      |                                          |                                                     |        |         |         |        |      
|                                   | Cash and cash equivalents at end of year                                        |                                                      | $                                        | 17,041                                              |        |         | $       | 10,127 |       |        | $      | 14,393 |       
|                                   |                                                                                 |                                                      |                                          |                                                     |        |         |         |        |      
|SUPPLEMENTAL CASH FLOW DISCLOSURES |                                                                                 |                                                      |                                          |                                                     |        |         |         |        |       |        |        |       
|                                   |                                                                                 | Interest paid                                        |                                          | $                                                   | 118    |         |         | $      | 139   |        |        | $      | 143    |       
|                                   |                                                                                 | Income taxes paid, net                               |                                          |                                                     | 1,092  |         |         |        | 565   |        |        |        | 298    |       
|                                   |                                                                                 | Payment of obligation with common stock              |                                          |                                                     | 50     |         |         |        | 38    |        |        |        |       |       
|                                   | Purchased technology acquired in exchange for:                                  |                                                      |                                          |                                                     |        |         |         |        |       |        |        |        |       
|                                   |                                                                                 | Common stock issued                                  |                                          |                                                     |       |         |         |        |      |        |        |        | (1,666 | )     
|                                   |                                                                                 | Liabilities incurred or assumed                      |                                          |                                                     |       |         |         |        |      |        |        |        | (2,029 | )     



52



---



##### Table of Contents



ONYX SOFTWARE CORPORATION





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|   |                                                                              
|-- | -----------------------------------------------------------------------------
|1. | Description of the Company and Summary of Significant
    Accounting Policies



| |                           
| | --------------------------
| | Description of the Company







| |                    
| | -------------------
| | Reverse Stock Split





| |                            
| | ---------------------------
| | Principles of Consolidation





| |                 
| | ----------------
| | Use of Estimates



53



---



##### Table of Contents



ONYX SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                    
| | -------------------
| | Revenue Recognition

















54



---



##### Table of Contents



ONYX SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |                                     
| | ------------------------------------
| | Cash Equivalents and Restricted Cash







| |                                     
| | ------------------------------------
| | Fair Values of Financial Instruments

Investment Losses and Impairment




| |                       
| | ----------------------
| | Property and Equipment





| |                               
| | ------------------------------
| | Intangible Assets and Goodwill





55



---



##### Table of Contents



ONYX SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)










| |                                
| | -------------------------------
| | Impairment of Long-Lived Assets





| |                                 
| | --------------------------------
| | Investment Losses and Impairment



56



---



##### Table of Contents



ONYX SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |              
| | -------------
| | Restructuring







| |                               
| | ------------------------------
| | Research and Development Costs





| |                                                         
| | --------------------------------------------------------
| | Accounts Receivable and Concentration of Credit
    Risk





57



---



##### Table of Contents



ONYX SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                             
| | ----------------------------
| | Foreign Currency Translation







| |             
| | ------------
| | Income Taxes





| |                         
| | ------------------------
| | Stock-Based Compensation



58



---



##### Table of Contents



ONYX SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                                                                                                 |  |                                       |         |   |      |   |         |      |  |   |        |  
|---------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                                                                                 |  | Year Ended December 31,               |        
|                                                                                                                 |  |                                       |        
|                                                                                                                 |  | 2002                                  |         |   | 2003 |   |         | 2004 | 
|                                                                                                                 |  |                                       |         |   |      |   |         |      | 
|                                                                                                                 |  | (In thousands, except per share data) |        
|Net loss:                                                                                                        |  |                                       |         |   |      |   |         |      |  |   |        |  
|As reported                                                                                                      |  | $                                     | (13,770 | ) |      | $ | (6,154  | )    |  | $ | (2,754 | )
|Add: stock-based employee expense included in reported net
    loss(1)                                           |  |                                       | 248     |   |      |   | 30      |      |  |   |       |  
|Deduct: stock-based employee compensation expense determined
    under fair-value-based method for all awards(2) |  |                                       | (8,935  | ) |      |   | (5,281  | )    |  |   | (3,762 | )
|                                                                                                                 |  |                                       |         |   |      |   |         |      | 
|Pro forma                                                                                                        |  | $                                     | (22,457 | ) |      | $ | (11,405 | )    |  | $ | (6,516 | )
|                                                                                                                 |  |                                       |         |   |      |   |         |      | 
|Net loss per share:                                                                                              |  |                                       |         |   |      |   |         |      |  |   |        |  
|As reported                                                                                                      |  | $                                     | (1.10   | ) |      | $ | (0.46   | )    |  | $ | (0.19  | )
|                                                                                                                 |  |                                       |         |   |      |   |         |      | 
|Pro forma                                                                                                        |  | $                                     | (1.80   | ) |      | $ | (0.85   | )    |  | $ | (0.45  | )
|                                                                                                                 |  |                                       |         |   |      |   |         |      | 






|    |                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Excludes $38,000 in stock compensation expense associated with
    the restricted stock awarded to a non-employee consultant and
    $2,000 of stock compensation expense associated with options
    granted to a non-employee consultant in 2003.
|   
|(2) | See Note 11 for details of the assumptions used to arrive
    at the fair value of each option grant.                                                                                                                                              



| |                          
| | -------------------------
| | Earnings (Loss) Per Share





| |                           
| | --------------------------
| | Other Comprehensive Income





| |            
| | -----------
| | Advertising



59



---



##### Table of Contents



ONYX SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                 
| | ----------------
| | Interest Expense





| |                  
| | -----------------
| | Business Segments





| |                  
| | -----------------
| | Reclassifications





| |                                          
| | -----------------------------------------
| | Recently Issued Accounting Pronouncements





|   |                                                                             
|-- | ----------------------------------------------------------------------------
|2. | Acquisitions, Purchased Technology, Other Intangible Assets
    and Goodwill



| |        
| | -------
| | Visuale



60



---



##### Table of Contents



ONYX SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                               |                              |              |        |       |              |   |        |        | 
|------------------------------ | ---------------------------- | ------------ | ------ | ----- | ------------ | - | ------ | ------ | 
|                               |                              | December 31, |        |       | December 31, |  
|                               |                              | 2003         |        |       | 2004         |  
|                               |                              |              |        |       |              |  
|Purchased technology           |                              | $            | 2,379  |       |              | $ | 6,535  |       
|Less: accumulated amortization |                              |              | (2,379 | )     |              |   | (2,440 | )     
|                               |                              |              |        |       |              |  
|                               | Purchased technology, net    |              | $      | 0     |              |   | $      | 4,095  | 
|                               |                              |              |        |       |              |  
|Other intangible assets        |                              | $            | 4,498  |       |              | $ | 4,889  |       
|Less: accumulated amortization |                              |              | (3,823 | )     |              |   | (4,889 | )     
|                               |                              |              |        |       |              |  
|                               | Other intangible assets, net |              | $      | 675   |              |   | $      | 0      | 
|                               |                              |              |        |       |              |  
|Goodwill                       |                              | $            | 16,235 |       |              | $ | 17,686 |       
|Less: accumulated amortization |                              |              | (6,817 | )     |              |   | (7,380 | )     
|                               |                              |              |        |       |              |  
|                               | Goodwill, net                |              | $      | 9,508 |              |   | $      | 10,306 | 
|                               |                              |              |        |       |              |  





|   |                                        
|-- | ---------------------------------------
|3. | Restructuring and Other Related Charges





|                                            |  |            |         |        |              |   |          |            |  |   |             |   |  |       |        |   |       |   |      |   |  |   |         |  
|------------------------------------------- |  | ---------- | ------- | ------ | ------------ | - | -------- | ---------- |  | - | ----------- | - |  | ----- | ------ | - | ----- | - | ---- | - |  | - | ------- | -
|                                            |  |            |         | Excess |              |   | Employee |            |  |   |             |   |  |      
|                                            |  | Excess     |         |        | Facilities  |   |          | Separation |  |   | Asset       |   |  |       |        |  
|                                            |  | Facilities |         |        | Warrants     |   |          | Costs      |  |   | Impairments |   |  | Other |        |   | Total |  
|                                            |  |            |         |        |              |   |          |            |  |   |             |   |  |       |        |   |       |  
|Balance at December 31, 2001                |  | $          | 24,295  |        |              | $ |         |            |  | $ | 250         |   |  | $     |       |   |       | $ | 769  |   |  | $ | 25,314  |  
|Charge for the year ended December 31, 2002 |  |            | 4,361   |        |              |   | 920      |            |  |   | 1,266       |   |  |       | 2,204  |   |       |   | (260 | ) |  |   | 8,491   |  
|Cash payments and write-offs                |  |            | (16,522 | )      |              |   |         |            |  |   | (880        | ) |  |       | (2,204 | ) |       |   | (455 | ) |  |   | (20,061 | )
|                                            |  |            |         |        |              |   |          |            |  |   |             |   |  |       |        |   |       |  
|Balance at December 31, 2002                |  |            | 12,134  |        |              |   | 920      |            |  |   | 636         |   |  |       |       |   |       |   | 54   |   |  |   | 13,744  |  
|Charge for the year ended December 31, 2003 |  |            | 444     |        |              |   |         |            |  |   | 769         |   |  |       | 209    |   |       |   |     |   |  |   | 1,422   |  
|Cash payments and write-offs                |  |            | (9,486  | )      |              |   |         |            |  |   | (1,334      | ) |  |       | (209   | ) |       |   | (54  | ) |  |   | (11,083 | )
|Fair value adjustment                       |  |            |        |        |              |   | (355     | )          |  |   |            |   |  |       |       |   |       |   |     |   |  |   | (355    | )
|                                            |  |            |         |        |              |   |          |            |  |   |             |   |  |       |        |   |       |  
|Balance at December 31, 2003                |  |            | 3,092   |        |              |   | 565      |            |  |   | 71          |   |  |       |       |   |       |   |     |   |  |   | 3,728   |  
|Charge for the year ended December 31, 2004 |  |            | 155     |        |              |   |         |            |  |   | 287         |   |  |       |       |   |       |   |     |   |  |   | 442     |  
|Cash payments                               |  |            | (2,516  | )      |              |   |         |            |  |   | (358        | ) |  |       |       |   |       |   |     |   |  |   | (2,874  | )
|Fair value adjustment                       |  |            |        |        |              |   | (513     | )          |  |   |            |   |  |       |       |   |       |   |     |   |  |   | (513    | )
|                                            |  |            |         |        |              |   |          |            |  |   |             |   |  |       |        |   |       |  
|Balance at December 31, 2004                |  | $          | 731     |        |              | $ | 52       |            |  | $ |            |   |  | $     |       |   |       | $ |     |   |  | $ | 783     |  
|                                            |  |            |         |        |              |   |          |            |  |   |             |   |  |       |        |   |       |  



61



---



##### Table of Contents



ONYX SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)










|   |                                 
|-- | --------------------------------
|4. | Investment Losses and Impairment



62



---



##### Table of Contents



ONYX SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|   |           
|-- | ----------
|5. | Onyx Japan













|   |                         
|-- | ------------------------
|6. | Stock-Based Compensation



63



---



##### Table of Contents



ONYX SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                  |  |                |     |  |      |   |    |      |  |   |   | 
|--------------------------------- |  | -------------- | --- |  | ---- | - | -- | ---- |  | - | - | 
|                                  |  | Year Ended    
|                                  |  | December 31,  
|                                  |  |               
|                                  |  | 2002           |     |  | 2003 |   |    | 2004
|                                  |  |                |     |  |      |   |    |     
|                                  |  | (In thousands)
|Support and service cost of sales |  | $              | 142 |  |      | $ | 30 |      |  | $ |  | 
|Sales and marketing               |  |                | 49  |  |      |   |   |      |  |   |  | 
|Research and development          |  |                | 18  |  |      |   |   |      |  |   |  | 
|General and administrative        |  |                | 39  |  |      |   | 40 |      |  |   |  | 
|                                  |  |                |     |  |      |   |    |      | 
|Total stock-based compensation    |  | $              | 248 |  |      | $ | 70 |      |  | $ |  | 
|                                  |  |                |     |  |      |   |    |      | 



|   |                       
|-- | ----------------------
|7. | Property and Equipment



|                                               |  |                |        |   |      |   |        |  
|---------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | -
|                                               |  | December 31,   |       
|                                               |  |                |       
|                                               |  | 2003           |        |   | 2004 |  
|                                               |  |                |        |   |      |  
|                                               |  | (In thousands) |       
|Computer and office equipment                  |  | $              | 5,849  |   |      | $ | 5,646  |  
|Purchased software                             |  |                | 3,646  |   |      |   | 2,242  |  
|Furniture and fixtures                         |  |                | 1,465  |   |      |   | 1,540  |  
|Leasehold improvements                         |  |                | 2,994  |   |      |   | 3,230  |  
|                                               |  |                |        |   |      |  
|                                               |  |                | 13,954 |   |      |   | 12,658 |  
|Less accumulated depreciation and amortization |  |                | (9,677 | ) |      |   | (8,947 | )
|                                               |  |                |        |   |      |  
|                                               |  | $              | 4,277  |   |      | $ | 3,711  |  
|                                               |  |                |        |   |      |  



|   |               
|-- | --------------
|8. | Line of Credit



64



---



##### Table of Contents



ONYX SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|   |                               
|-- | ------------------------------
|9. | Long-Term Debt and Commitments



| |       
| | ------
| | Leases





|                         |            |                  |        |        | 
|------------------------ | ---------- | ---------------- | ------ | ------ | 
|                         |            | Operating Leases |       
|                         |            |                  |       
|                         |            | (In thousands)   |       
|Year ending December 31: |            |                  |        |       
|                         | 2005       |                  | $      | 4,985  | 
|                         | 2006       |                  |        | 3,935  | 
|                         | 2007       |                  |        | 3,664  | 
|                         | 2008       |                  |        | 3,262  | 
|                         | 2009       |                  |        | 3,289  | 
|                         | Thereafter |                  |        | 16,008 | 
|                         |            |                  |       
|                         |            | $                | 35,143 |       
|                         |            |                  |       





65



---



##### Table of Contents



ONYX SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                         |      |                  |       |       | 
|------------------------ | ---- | ---------------- | ----- | ----- | 
|                         |      | Operating Leases |      
|                         |      |                  |      
|                         |      | (In thousands)   |      
|Year ending December 31: |      |                  |       |      
|                         | 2005 |                  | $     | 1,282 | 
|                         | 2006 |                  |       | 1,075 | 
|                         | 2007 |                  |       | 1,075 | 
|                         | 2008 |                  |       | 1,075 | 
|                         | 2009 |                  |       | 718   | 
|                         |      |                  |      
|                         |      | $                | 5,225 |      
|                         |      |                  |      



| |                               
| | ------------------------------
| | Third-Party License Agreements





| |          
| | ---------
| | Term Loan





| |                                
| | -------------------------------
| | Purchased Technology Obligation



66



---



##### Table of Contents



ONYX SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|    |           
|--- | ----------
|10. | Guarantees





|    |                     
|--- | --------------------
|11. | Shareholders Equity



| |                        
| | -----------------------
| | Shareholder Rights Plan











| |                
| | ---------------
| | Public Offering





| |                 
| | ----------------
| | Private Offering



67



---



##### Table of Contents



ONYX SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |                               
| | ------------------------------
| | Increase in Authorized Capital





| |                          
| | -------------------------
| | Warrants for Common Stock





| |                                                                 
| | ----------------------------------------------------------------
| | Common Stock Issued in Conjunction with Purchased
    Technology



68



---



##### Table of Contents



ONYX SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |                                                               
| | --------------------------------------------------------------
| | 1994 Combined Incentive and Nonqualified Stock Option
    Plan





| |                                       
| | --------------------------------------
| | 1998 Stock Incentive Compensation Plan





| |                                                 
| | ------------------------------------------------
| | 2001 Nonofficer Employee Stock Compensation Plan





| |                                                
| | -----------------------------------------------
| | Chief Executive Officer Stock Compensation Plan



69



---



##### Table of Contents



ONYX SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)










| |                      
| | ---------------------
| | Stock Option Activity



|                                                               |                                                                |               |           |                     |           |          |           |            |   |   |       |       | 
|-------------------------------------------------------------- | -------------------------------------------------------------- | ------------- | --------- | ------------------- | --------- | -------- | --------- | ---------- | - | - | ----- | ----- | 
|                                                               |                                                                |               |           | Outstanding Options |          
|                                                               |                                                                |               |           |                     |          
|                                                               |                                                                |               |           |                     |           | Weighted |          
|                                                               |                                                                | Shares        |           |                     |           |          | Average   |           
|                                                               |                                                                | Available for |           |                     | Number of |          |           | Exercise   |  
|                                                               |                                                                | Grant         |           |                     | Shares    |          |           | Prices     |  
|                                                               |                                                                |               |           |                     |           |          |           |            |  
|Outstanding at January 1, 2002 (exercisable 
    736,922)     |                                                                |               | 794,827   |                     |           |          | 2,494,370 |            |   | $ | 34.60 |      
|                                                               | 1998 option plan increase                                      |               |           | 504,600             |           |          |           |           |   |   |       |       | 
|                                                               | Options granted                                                |               |           | (772,505            | )         |          |           | 772,505    |   |   | $     | 14.84 | 
|                                                               | Options cancelled                                              |               |           | 762,978             |           |          |           | (762,978   | ) |   | $     | 37.08 | 
|                                                               | Options exercised                                              |               |           |                    |           |          |           | (47,224    | ) |   | $     | 4.64  | 
|                                                               |                                                                |               |           |                     |           |          |           |            |  
|Outstanding at December 31, 2002 (exercisable 
    1,249,105) |                                                                |               | 1,289,900 |                     |           |          | 2,456,673 |            |   | $ | 28.20 |      
|                                                               |                                                                |               |           |                     |           |          |           |            |  
|                                                               | 1998 option plan increase                                      |               |           | 624,139             |           |          |           |           |   |   |       |       | 
|                                                               | Options granted                                                |               |           | (1,691,405          | )         |          |           | 1,691,405  |   |   | $     | 4.34  | 
|                                                               | Options cancelled                                              |               |           | 821,407             |           |          |           | (821,407   | ) |   | $     | 27.37 | 
|                                                               | Options cancelled outside the Companys stock option plans     |               |           |                    |           |          |           | (63,820    | ) |   | $     | 31.28 | 
|                                                               | Options exercised                                              |               |           |                    |           |          |           | (20,643    | ) |   | $     | 2.72  | 
|                                                               |                                                                |               |           |                     |           |          |           |            |  
|Outstanding at December 31, 2003 (exercisable 
    1,517,796) |                                                                |               | 1,044,041 |                     |           |          | 3,242,208 |            |   | $ | 16.09 |      
|                                                               |                                                                |               |           |                     |           |          |           |            |  
|                                                               | 1998 option plan increase                                      |               |           | 672,100             |           |          |           |           |   |   |       |       | 
|                                                               | Options granted                                                |               |           | (1,939,315          | )         |          |           | 1,939,315  |   |   | $     | 3.51  | 
|                                                               | Options granted outside the Companys stock option plans       |               |           |                    |           |          |           | 600,000    |   |   | $     | 5.79  | 
|                                                               | Options cancelled                                              |               |           | 1,261,075           |           |          |           | (1,261,075 | ) |   | $     | 10.90 | 
|                                                               | Options exercised                                              |               |           |                    |           |          |           | (28,972    | ) |   | $     | 1.64  | 
|                                                               |                                                                |               |           |                     |           |          |           |            |  
|                                                               | Outstanding at December 31, 2004 (exercisable 
    2,032,060) |               |           | 1,037,901           |           |          |           | 4,491,476  |   |   | $     | 10.83 | 
|                                                               |                                                                |               |           |                     |           |          |           |            |  

70



---



##### Table of Contents



ONYX SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                         |  |             |           |                  |                  |   |             |                  |  |  |           |  |  |                  |           |  |  |   |       | 
|------------------------ |  | ----------- | --------- | ---------------- | ---------------- | - | ----------- | ---------------- |  |  | --------- |  |  | ---------------- | --------- |  |  | - | ----- | 
|                         |  | Outstanding |           |                  |                  |   |            
|                         |  |             |           |                  |                 
|                         |  |             |           | Weighted Average |                  |   | Exercisable |                 
|                         |  |             |           | Remaining        |                  |   |             |                 
|                         |  | Number of   |           |                  | Weighted Average |   |             | Contractual Life |  |  | Number of |  |  | Weighted Average |          
|Range of Exercise Prices |  | Options     |           |                  | Exercise Prices  |   |             | (Years)          |  |  | Options   |  |  | Exercise Prices  |          
|                         |  |             |           |                  |                  |   |             |                  |  |  |           |  |  |                  |          
|$ 0.40  $  3.36         |  |             | 183,004   |                  |                  | $ | 1.87        |                  |  |  | 5.19      |  |  |                  | 111,746   |  |  | $ | 0.93  | 
|$ 3.38  $  3.50         |  |             | 1,165,429 |                  |                  | $ | 3.49        |                  |  |  | 9.36      |  |  |                  | 254,392   |  |  | $ | 3.50  | 
|$ 3.51  $  3.86         |  |             | 614,615   |                  |                  | $ | 3.73        |                  |  |  | 9.52      |  |  |                  | 26,049    |  |  | $ | 3.71  | 
|$ 3.96  $  4.16         |  |             | 487,498   |                  |                  | $ | 4.16        |                  |  |  | 8.47      |  |  |                  | 279,684   |  |  | $ | 4.16  | 
|$ 4.25  $  5.20         |  |             | 556,874   |                  |                  | $ | 4.54        |                  |  |  | 7.78      |  |  |                  | 312,474   |  |  | $ | 4.56  | 
|$ 5.32  $ 12.13         |  |             | 511,017   |                  |                  | $ | 9.72        |                  |  |  | 7.79      |  |  |                  | 197,502   |  |  | $ | 11.04 | 
|$12.56  $152.38         |  |             | 973,039   |                  |                  | $ | 33.32       |                  |  |  | 6.01      |  |  |                  | 850,213   |  |  | $ | 35.89 | 
|                         |  |             |           |                  |                  |   |             |                  |  |  |           |  |  |                  |          
|$ 0.40  $152.38         |  |             | 4,491,476 |                  |                  | $ | 10.83       |                  |  |  | 8.02      |  |  |                  | 2,032,060 |  |  | $ | 17.90 | 
|                         |  |             |           |                  |                  |   |             |                  |  |  |           |  |  |                  |          





| |                                  
| | ---------------------------------
| | 1998 Employee Stock Purchase Plan









71



---



##### Table of Contents



ONYX SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                                                                                      
| | -------------------------------------------------------------------------------------
| | Fair Value of Stock Options and Employee Stock Purchase
    Rights Under SFAS No. 123



|                        |  |              |         |  |      |  |            |      |  |  |              | 
|----------------------- |  | ------------ | ------- |  | ---- |  | ---------- | ---- |  |  | ------------ | 
|                        |  | December 31, |        
|                        |  |              |        
|                        |  | 2002         |         |  | 2003 |  |            | 2004 | 
|                        |  |              |         |  |      |  |            |      | 
|Expected dividend yield |  |              | 0.0%    |  |      |  | 0.0%       |      |  |  | 0.0%         | 
|Risk-free interest rate |  |              | 3.0%    |  |      |  | 3.0%       |      |  |  | 3.1% to 3.6% | 
|Volatility              |  |              | 85%     |  |      |  | 72% to 85% |      |  |  | 56% to 69%   | 
|Expected life           |  |              | 5 years |  |      |  | 5 years    |      |  |  | 5 years      | 







| |                                           
| | ------------------------------------------
| | Common Shares Reserved for Future Issuance



|                             |  |  |           | 
|---------------------------- |  |  | --------- | 
|Stock options                |  |  | 5,529,377 | 
|Employee Stock Purchase Plan |  |  | 311,312   | 
|                             |  |  |          
|                             |  |  | 5,840,689 | 
|                             |  |  |          

72



---



##### Table of Contents



ONYX SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|    |                          
|--- | -------------------------
|12. | Earnings (Loss) Per Share



|                                                            |                                |                                       |         |       |      |   |        |       |    |   |        |       |    | 
|----------------------------------------------------------- | ------------------------------ | ------------------------------------- | ------- | ----- | ---- | - | ------ | ----- | -- | - | ------ | ----- | -- | 
|                                                            |                                | Year Ended December 31,               |        
|                                                            |                                |                                       |        
|                                                            |                                | 2002                                  |         |       | 2003 |   |        | 2004  |   
|                                                            |                                |                                       |         |       |      |   |        |       |   
|                                                            |                                | (In thousands, except per share data) |        
|Net loss(A)                                                 |                                | $                                     | (13,770 | )     |      | $ | (6,154 | )     |    | $ | (2,754 | )    
|Weighted average number of common shares(B)                 |                                |                                       | 12,481  |       |      |   | 13,442 |       |    |   | 14,364 |      
|                                                            | Effect of dilutive securities: |                                       |         |       |      |   |        |       |    |   |        |       |   
|                                                            |                                | Stock options                         |         |       | *    |   |        |       | *  |   |        |       | *  | 
|                                                            |                                | Warrants                              |         |       | **   |   |        |       | ** |   |        |       | ** | 
|                                                            |                                |                                       |         |       |      |   |        |       |   
|Adjusted weighted average shares and assumed conversions(C) |                                |                                       | 12,481  |       |      |   | 13,442 |       |    |   | 14,364 |      
|                                                            |                                |                                       |         |       |      |   |        |       |   
|Loss per share:                                             |                                |                                       |         |       |      |   |        |       |    |   |        |      
|                                                            | Basic(A)/(B)                   |                                       | $       | (1.10 | )    |   | $      | (0.46 | )  |   | $      | (0.19 | ) 
|                                                            | Diluted(A)/(C)                 |                                       | $       | (1.10 | )    |   | $      | (0.46 | )  |   | $      | (0.19 | ) 






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | * | The effect of stock options are excluded from the computation of
    diluted earnings per share because the effects are antidilutive.
    Outstanding stock options of 2,456,673, 3,242,208 and 4,491,476
    at December 31, 2002, 2003 and 2004, respectively, were
    excluded from the computation of diluted earnings per share
    because their effect was antidilutive (see Note 11 for
    additional stock option information). Outstanding options will
    be included in the computation of diluted earnings per share in
    future periods to the extent their effects are dilutive. If the
    Company had been profitable during any of the periods reported,
    based on the average price of the Companys common stock
    during each period using the treasury stock method, the
    approximate number of dilutive options included in the
    computation of diluted earnings per share would have been
    210,000 shares, 111,000 shares and
    128,000 shares, respectively, during the years ended
    December 31, 2002, 2003 and 2004.



|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|** | In January 2003, the Company issued warrants to
    purchase 198,750 shares of its common stock at
    exercise prices ranging from $10.38 to $13.84 per share in
    connection with the termination of excess facilities. In May
    2003, the Company issued warrants to
    purchase 6,250 shares of its common stock at an
    exercise price of $3.25 per share in connection with the
    private placement of the Companys common stock in May
    2003. There were no warrants outstanding prior to January 2003.
    Outstanding warrants were excluded from the computation of
    diluted earnings per share for the year ended December 31,
    2004 because their effect was antidilutive. Outstanding warrants
    will be included in the computation of diluted earnings per
    share in future periods to the extent their effects are dilutive.



|    |             
|--- | ------------
|13. | Income Taxes



|        |  |                         |         |   |      |   |        |      |  |   |        |  
|------- |  | ----------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|        |  | Year Ended December 31, |        
|        |  |                         |        
|        |  | 2002                    |         |   | 2003 |   |        | 2004 | 
|        |  |                         |         |   |      |   |        |      | 
|        |  | (In thousands)          |        
|U.S.    |  | $                       | (13,452 | ) |      | $ | (7,263 | )    |  | $ | (2,327 | )
|Foreign |  |                         | (765    | ) |      |   | 1,255  |      |  |   | (499   | )
|        |  |                         |         |   |      |   |        |      | 
|        |  | $                       | (14,217 | ) |      | $ | (6,008 | )    |  | $ | (2,826 | )
|        |  |                         |         |   |      |   |        |      | 

73



---



##### Table of Contents



ONYX SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                               |                 |                            |      |       |       |   |      |      |     |   |     |     |     |  
|------------------------------ | --------------- | -------------------------- | ---- | ----- | ----- | - | ---- | ---- | --- | - | --- | --- | --- | -
|                               |                 | Year Ended December 31,    |     
|                               |                 |                            |     
|                               |                 | 2002                       |      |       | 2003  |   |      | 2004 |    
|                               |                 |                            |      |       |       |   |      |      |    
|                               |                 | (In thousands)             |     
|Current:                       |                 |                            |      |       |       |   |      |      |     |   |     |    
|                               | Federal         |                            | $    | 0     |       |   | $    | 0    |     |   | $   | 0   |    
|                               | State and local |                            |      | 22    |       |   |      | 20   |     |   |     | 20  |    
|                               | Foreign         |                            |      | 1,024 |       |   |      | 601  |     |   |     | (86 | )  
|                               |                 |                            |      |       |       |   |      |      |    
|                               |                 | Total current income taxes |      |       | 1,046 |   |      |      | 621 |   |     |     | (66 | )
|Deferred  foreign             |                 |                            | (461 | )     |       |   | (357 | )    |     |   | 9   |    
|                               |                 |                            |      |       |       |   |      |      |    
|Income tax provision (benefit) |                 | $                          | 585  |       |       | $ | 264  |      |     | $ | (57 | )  
|                               |                 |                            |      |       |       |   |      |      |    



|                                                      |  |                         |        |   |      |   |        |      |  |   |      |  
|----------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ---- | -
|                                                      |  | Year Ended December 31, |       
|                                                      |  |                         |       
|                                                      |  | 2002                    |        |   | 2003 |   |        | 2004 | 
|                                                      |  |                         |        |   |      |   |        |      | 
|                                                      |  | (In thousands)          |       
|Income tax expense (benefit) at statutory rate of 34% |  | $                       | (4,834 | ) |      | $ | (2,043 | )    |  | $ | (961 | )
|State taxes, net of federal benefit                   |  |                         | 15     |   |      |   | 13     |      |  |   | 13   |  
|Losses producing no current tax benefit               |  |                         | 5,404  |   |      |   | 2,294  |      |  |   | 891  |  
|                                                      |  |                         |        |   |      |   |        |      | 
|Income tax provision                                  |  | $                       | 585    |   |      | $ | 264    |      |  | $ | (57  | )
|                                                      |  |                         |        |   |      |   |        |      | 



74



---



##### Table of Contents



ONYX SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                                |                                               |                |         |        |      |   |         |        | 
|------------------------------- | --------------------------------------------- | -------------- | ------- | ------ | ---- | - | ------- | ------ | 
|                                |                                               | December 31,   |        
|                                |                                               |                |        
|                                |                                               | 2003           |         |        | 2004 |  
|                                |                                               |                |         |        |      |  
|                                |                                               | (In thousands) |        
|Deferred tax assets:            |                                               |                |         |        |      |   |         |       
|                                | U.S. net operating loss carryforwards         |                | $       | 39,580 |      |   | $       | 40,434 | 
|                                | U.S. capital loss carryforwards               |                |         | 723    |      |   |         | 725    | 
|                                | Foreign net operating loss carryforwards      |                |         | 2,721  |      |   |         | 2,821  | 
|                                | Research and development credit carryforwards |                |         | 2,690  |      |   |         | 2,788  | 
|                                | Foreign tax credit carryforwards              |                |         | 1,435  |      |   |         | 918    | 
|                                | Restructuring and other accrued liabilities   |                |         | 1,288  |      |   |         | 276    | 
|                                | Other                                         |                |         | 1,210  |      |   |         | 2,583  | 
|                                |                                               |                |         |        |      |  
|Total gross deferred tax assets |                                               |                | 49,647  |        |      |   | 50,545  |       
|Less valuation allowance        |                                               |                | (49,285 | )      |      |   | (50,421 | )     
|                                |                                               |                |         |        |      |  
|                                |                                               |                | 362     |        |      |   | 124     |       
|Deferred tax liabilities:       |                                               |                |         |        |      |   |         |       
|                                | Purchased technology and other intangibles    |                |         | (229   | )    |   |         |       | 
|                                |                                               |                |         |        |      |  
|Net deferred tax assets         |                                               | $              | 133     |        |      | $ | 124     |       
|                                |                                               |                |         |        |      |  





|    |                      
|--- | ---------------------
|14. | Employee Benefit Plan





|    |                                   
|--- | ----------------------------------
|15. | Segment and Geographic Information



75



---



##### Table of Contents



ONYX SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








|                              |         |         |   |        |         |  |   |         |  |  |       |        |  |  |   |        | 
|----------------------------- | ------- | ------- | - | ------ | ------- |  | - | ------- |  |  | ----- | ------ |  |  | - | ------ | 
|                              |         | North   |   |        | United  |  |   | Rest of |  |  |      
|                              |         | America |   |        | Kingdom |  |   | World   |  |  | Total |       
|                              |         |         |   |        |         |  |   |         |  |  |       |       
|Year ended December 31, 2002: |         |         |   |        |         |  |   |         |  |  |       |        |  |  |   |       
|                              | Revenue |         | $ | 44,556 |         |  | $ | 11,712  |  |  | $     | 13,116 |  |  | $ | 69,384 | 
|Year ended December 31, 2003: |         |         |   |        |         |  |   |         |  |  |       |        |  |  |   |       
|                              | Revenue |         | $ | 35,454 |         |  | $ | 8,002   |  |  | $     | 14,917 |  |  | $ | 58,373 | 
|Year ended December 31, 2004: |         |         |   |        |         |  |   |         |  |  |       |        |  |  |   |       
|                              | Revenue |         | $ | 36,991 |         |  | $ | 7,027   |  |  | $     | 13,616 |  |  | $ | 57,634 | 



|    |                             
|--- | ----------------------------
|16. | Litigation and Contingencies





|    |          
|--- | ---------
|17. | Liquidity





76



---



##### Table of Contents



ONYX SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




77



---



##### Table of Contents








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








|         |                        
|-------- | -----------------------
|ITEM 9A. | CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures




Managements Report on Internal Control Over Financial
Reporting




Changes in Internal Control Over Financial Reporting




Inherent Limitations on the Effectiveness of Controls






78



---



##### Table of Contents










|         |                  
|-------- | -----------------
|ITEM 9B. | OTHER INFORMATION






PART III







|         |                                                   
|-------- | --------------------------------------------------
|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT














|         |                       
|-------- | ----------------------
|ITEM 11. | EXECUTIVE COMPENSATION








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
    MANAGEMENT AND RELATED SHAREHOLDER MATTERS








|         |                                               
|-------- | ----------------------------------------------
|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS








|         |                                       
|-------- | --------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES



79



---



##### Table of Contents








PART IV







|         |                                           
|-------- | ------------------------------------------
|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Financial Statements and Financial Statement
Schedules:




|   |                                           
|-- | ------------------------------------------
|1. | Index to Consolidated Financial Statements

|                                                          |  |      |    | 
|--------------------------------------------------------- |  | ---- | -- | 
|                                                          |  | Page |   
|                                                          |  |      |   
|Reports of Independent Registered Public Accounting Firm  |  |      | 47 | 
|Consolidated Financial Statements:                        |  |      |    | 
|Balance Sheets                                            |  |      | 49 | 
|Statements of Operations                                  |  |      | 50 | 
|Statements of Shareholders Equity and Comprehensive Loss |  |      | 51 | 
|Statements of Cash Flows                                  |  |      | 52 | 
|Notes to Consolidated Financial Statements                |  |      | 53 | 



|   |                                       
|-- | --------------------------------------
|2. | Index to Financial Statement Schedules

|                                                |  |  |    | 
|----------------------------------------------- |  |  | -- | 
|Schedule II  Valuation and Qualifying Accounts |  |  | 86 | 



Exhibits


|       |    |     |             |                                                                                                                                                                                      
|------ | -- | --- | ----------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |    |     | Description
|       |    |     |            
|       | 3  | .1  |             | Restated Articles of Incorporation of the
    registrant(exhibit 3.1)(o)                                                                                                             
|      
|       | 3  | .2  |             | Amended and Restated Bylaws of the registrant
    (exhibit 3.2)(u)                                                                                                                   
|      
|       | 4  | .1  |             | Rights Agreement dated October 25, 1999 between the
    registrant and ChaseMellon Shareholder Services, L.L.C.
    (exhibit 2.1)(b)                                                 
|      
|       | 4  | .2  |             | Amendment No. 1 to Rights Agreement dated March 5,
    2003 between the registrant and Mellon Investor Services LLC
    (exhibit 4.1)(n)                                             
|      
|       | 10 | .1* |             | Lease Termination Agreement dated November 7, 2002 between
    EOP-Sunset North Bellevue, L.L.C. and the registrant
    (exhibit 10.2)(k)                                            
|      
|       | 10 | .2  |             | Form of Indemnification Agreement between the registrant and
    each director and officer of the registrant
    (exhibit 10.12)(a)                                                  
|      
|       | 10 | .3  |             | Amended and Restated 1994 Stock Option Plan
    (exhibit 10.7)(a)                                                                                                                    
|      
|       | 10 | .4  |             | 1998 Stock Incentive Compensation Plan as amended and restated
    on March 21, 2003 (exhibit 10.5)(s)                                                                               
|      
|       | 10 | .5  |             | 2001 Nonofficer Employee Stock Compensation Plan as amended and
    restated April 27, 2001 (exhibit 10.1)(f)                                                                        
|      
|       | 10 | .6  |             | 1998 Employee Stock Purchase Plan as amended and restated
    April 6, 2001 (exhibit 10.1)(h)                                                                                        
|      
|       | 10 | .7  |             | Office Building Lease dated June 6, 2000 between the
    registrant and Bellevue Hines Development, L.L.C. and First
    Amendment to Lease dated June 20, 2000
    (exhibit 10.1)(c)
|      
|       | 10 | .8  |             | Second Amendment to Lease dated August 6, 2000 between the
    registrant and Bellevue Hines Development, L.L.C.
    (exhibit 10.8)(e)                                               

80



---



##### Table of Contents



|       |    |      |             |                                                                                                                                                   
|------ | -- | ---- | ----------- | --------------------------------------------------------------------------------------------------------------------------------------------------
|Number |    |      | Description
|       |    |      |            
|      
|       | 10 | .9   |             | Third Amendment to Lease dated December 20, 2002 between
    the registrant and Bellevue Hines Development, L.L.C.
    (exhibit 10.2)(l)          
|      
|       | 10 | .10  |             | Office Building Lease dated December 20, 2002 between the
    registrant and Bellevue Hines Development, L.L.C.
    (exhibit 10.1)(l)             
|      
|       | 10 | .11  |             | Form of Registration Rights Agreement entered into by the
    registrant and Bellevue Hines Development, L.L.C.
    (exhibit 10.3)(l)             
|      
|       | 10 | .12  |             | Form of Warrant LT-1 issued to Bellevue Hines Development,
    L.L.C. (exhibit 10.4)(l)                                                           
|      
|       | 10 | .13  |             | Form of Warrant LT-2 issued to Bellevue Hines Development,
    L.L.C. (exhibit 10.5)(l)                                                           
|      
|       | 10 | .14  |             | Form of Warrant LT-3 issued to Bellevue Hines Development,
    L.L.C. (exhibit 10.6)(l)                                                           
|      
|       | 10 | .15  |             | Joint Venture Agreement dated September 14, 2000 between
    the registrant and Prime Systems Corporation
    (exhibit 10.1)(d)                   
|      
|       | 10 | .16  |             | Loan and Security Agreement dated February 14, 2002 by and
    between the registrant and Silicon Valley Bank
    (exhibit 10.11)(j)              
|      
|       | 10 | .17  |             | Amendment to Loan Documents dated July 10, 2002 by and
    between the registrant and Silicon Valley Bank
    (exhibit 10.1)(m)                   
|      
|       | 10 | .18  |             | Amendment to Loan Documents dated December 27, 2002 by and
    between the registrant and Silicon Valley Bank
    (exhibit 10.19)(n)              
|      
|       | 10 | .19  |             | Amendment to Loan Documents dated March 28, 2003 by and
    between the registrant and Silicon Valley Bank
    (exhibit 10.1)(p)                  
|      
|       | 10 | .20  |             | Amendment to Loan Documents dated May 5, 2003 by and
    between the registrant and Silicon Valley Bank
    (exhibit 10.2)(p)                     
|      
|       | 10 | .21  |             | Loan and Security Agreement (Exim Program) dated May 5,
    2003 by and between the registrant and Silicon Valley Bank
    (exhibit 10.3)(p)      
|      
|       | 10 | .22  |             | Amendment to Loan Documents dated January 12, 2004 by and
    between the registrant and Silicon Valley Bank
    (exhibit 10.23)(s)               
|      
|       | 10 | .23  |             | Amendment to Loan Documents (Exim Program) dated
    January 12, 2004 by and between the registrant and Silicon
    Valley Bank (exhibit 10.24)(s)
|      
|       | 10 | .24* |             | Amendment to Loan Documents dated March 31, 2004 by and
    between the registrant and Silicon Valley Bank
    (exhibit 10.1)(r)                  
|      
|       | 10 | .25  |             | Amendment to Loan Documents (Exim Program) dated March 31,
    2004 by and between the registrant and Silicon Valley Bank
    (exhibit 10.2)(r)   
|      
|       | 10 | .26  |             | Intellectual Property Security Agreement dated November 8,
    2000 between the registrant and Silicon Valley Bank
    (exhibit 10.7)(e)          
|      
|       | 10 | .27  |             | Employment Agreement dated March 14, 2001 by and between
    the registrant and Brian C. Henry (exhibit 10.1)(g)                                  
|      
|       | 10 | .28  |             | Stock Option Agreement dated April 4, 2001 by and between
    the registrant and Brian C. Henry (exhibit 10.3)(g)                                 
|      
|       | 10 | .29  |             | Stock Option Agreement dated April 4, 2001 by and between
    the registrant and Brian C. Henry (exhibit 10.4)(g)                                 
|      
|       | 10 | .30  |             | Revised Stock Option Agreement dated April 18, 2001 by and
    between the registrant and Brian C. Henry (exhibit 10.3)(f)                        
|      
|       | 10 | .31  |             | Amendment to Employment Agreement dated November 14, 2001
    by and between the registrant and Brian C. Henry
    (exhibit 10.3)(i)              
|      
|       | 10 | .32  |             | Second Amendment to Employment Agreement dated April 16,
    2003 by and between the registrant and Brian C. Henry
    (exhibit 10.5)(p)          
|      
|       | 10 | .33  |             | Third Amendment to Employment Agreement dated January 1,
    2004 by and between the registrant and Brian C. Henry
    (exhibit 10.1)(u)          
|      
|       | 10 | .34  |             | Employment Agreement dated June 26, 2002 by and between the
    registrant and Benjamin E. Kiker, Jr.
    (exhibit 10.29)(n)                      

81



---



##### Table of Contents



|       |    |     |             |                                                                                                                                                                                                                                                               
|------ | -- | --- | ----------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |    |     | Description
|       |    |     |            
|      
|       | 10 | .35 |             | First Amendment to Employment Agreement dated April 16,
    2003 by and between the registrant and Benjamin E.
    Kiker, Jr. (exhibit 10.6)(p)                                                                                                               
|      
|       | 10 | .36 |             | Employment Agreement dated February 19, 2004 by and between
    the registrant and Brent R. Frei (exhibit 10.35)(s)                                                                                                                                           
|      
|       | 10 | .37 |             | First Amendment to Employment Agreement dated as of
    July 27, 2004 by and between the registrant and Brent R.
    Frei (exhibit 10.3)(u)                                                                                                                   
|      
|       | 10 | .38 |             | Letter Agreement dated March 5, 2003 by and between the
    registrant and Mazama Capital Management, Inc.
    (exhibit 10.30)(n)                                                                                                                             
|      
|       | 10 | .39 |             | Asset Purchase Agreement dated April 6, 2004 by and among
    Visuale, Inc. Softworks Australia Pty Ltd, certain stockholders
    of Visuale, Inc. and the registrant (exhibit 10.1)(q)                                                                       
|      
|       | 10 | .40 |             | Employment Agreement dated June 7, 2004 by and between the
    registrant and Janice Anderson (exhibit 10.1)(t)                                                                                                                                               
|      
|       | 10 | .41 |             | First Amendment to Employment Agreement dated January 20,
    2005 by and between the registrant and Janice Anderson
    (exhibit 10.1)(w)                                                                                                                    
|      
|       | 10 | .42 |             | Stock Option Agreement dated June 7, 2004 by and between
    the registrant and Janice Anderson (exhibit 10.2)(t)                                                                                                                                             
|      
|       | 10 | .43 |             | Stock Option Agreement dated June 7, 2004 by and between
    the registrant and Janice Anderson (exhibit 10.3)(t)                                                                                                                                             
|      
|       | 10 | .44 |             | Stock Option Agreement dated June 7, 2004 by and between
    the registrant and Janice Anderson (exhibit 10.4)(t)                                                                                                                                             
|      
|       | 10 | .45 |             | Stock Option Agreement dated June 7, 2004 by and between
    the registrant and Janice Anderson (exhibit 10.5)(t)                                                                                                                                             
|      
|       | 10 | .46 |             | Stock Option Agreement dated January 20, 2005 by and
    between the registrant and Janice Anderson (exhibit 10.2)(w)                                                                                                                                         
|      
|       | 10 | .47 |             | Employment Agreement dated effective May 25, 2004 by and
    between the registrant and Eben Frankenberg
    (exhibit 10.2)(u)                                                                                                                                
|      
|       | 10 | .48 |             | Employment Agreement dated as of September 20, 2004 by and
    between the registrant and Jack Denault (exhibit 10.1)(v)                                                                                                                                      
|      
|       | 10 | .49 |             | Employment Agreement between Onyx Software Corporation and
    Robert J. Chamberlain dated March 16, 2005
    (exhibit 10.1)(x)                                                                                                                               
|      
|       | 21 | .1 |             | Subsidiaries of the Registrant                                                                                                                                                                                                                                
|      
|       | 23 | .1 |             | Consent of KPMG LLP, Independent Registered Public Accounting
    Firm                                                                                                                                                                                        
|      
|       | 24 | .1 |             | Power of Attorney (contained on signature page)                                                                                                                                                                                                               
|      
|       | 31 | .1 |             | Certification of Chief Executive Officer pursuant to
    Rules 13a-14(a) and 15d-14(a) under the Securities Exchange
    Act of 1934, as amended                                                                                                              
|      
|       | 31 | .2 |             | Certification of Chief Financial Officer pursuant to
    Rules 13a-14(a) and 15d-14(a) under the Securities Exchange
    Act of 1934, as amended                                                                                                              
|      
|       | 32 | .1 |             | Certification of Chief Executive Officer furnished pursuant to
    Rules 13a-14(b) and 15d-14(b) under the Securities Exchange
    Act of 1934, as amended, and 18 U.S.C. § 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002
|       | 32 | .2 |             | Certification of Chief Financial Officer furnished pursuant to
    Rules 13a-14(b) and 15d-14(b) under the Securities Exchange
    Act of 1934, as amended, and 18 U.S.C. § 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002






| |   |                                                                           
| | - | --------------------------------------------------------------------------
| | * | Confidential treatment has been granted for portions of this
    document.



| |   |                
| | - | ---------------
| |  | Filed herewith.



|    |  |                                                                                                                                                                          
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Incorporated by reference to the designated exhibit to the
    registrants Registration Statement on Form S-1
    (No. 333-68559) filed on December 8, 1998, as amended.

82



---



##### Table of Contents





|    |  |                                                                                                                                                                      
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | Incorporated by reference to the designated exhibit to the
    registrants Registration Statement on Form 8-A
    (No. 0-25361) filed on October 28, 1999.          
|   
|(c) |  | Incorporated by reference to the designated exhibit to the
    registrants Quarterly Report on Form 10-Q
    (No. 0-25361) for the quarter ended June 30, 2000.     
|   
|(d) |  | Incorporated by reference to the designated exhibit to the
    registrants Current Report on Form 8-K
    (No. 0-25361) filed October 23, 2000.                     
|   
|(e) |  | Incorporated by reference to the designated exhibit to the
    registrants second Current Report on Form 8-K
    (No. 0-25361) filed February 6, 2001.              
|   
|(f) |  | Incorporated by reference to the designated exhibit to the
    registrants Quarterly Report on Form 10-K
    (No. 0-25361) for the quarter ended March 31, 2001.    
|   
|(g) |  | Incorporated by reference to the designated exhibit to the
    registrants Current Report on Form 8-K
    (No. 0-25361) filed April 12, 2001.                       
|   
|(h) |  | Incorporated by reference to the designated exhibit to the
    registrants Quarterly Report on Form 10-Q
    (No. 0-25361) for the quarter ended June 30, 2001.     
|   
|(i) |  | Incorporated by reference to the designated exhibit to the
    registrants first Current Report on Form 8-K
    (No. 0-25361) filed January 29, 2002.               
|   
|(j) |  | Incorporated by reference to the designated exhibit to the
    registrants Annual Report on From 10-K (No. 0-25361)
    for the year ended December 31, 2001.       
|   
|(k) |  | Incorporated by reference to the designated exhibit to the
    registrants Quarterly Report on Form 10-Q
    (No. 0-25361) for the quarter ended September 30, 2002.
|   
|(l) |  | Incorporated by reference to the designated exhibit to the
    registrants Current Report on Form 8-K
    (No. 0-25361) filed January 13, 2003.                     
|   
|(m) |  | Incorporated by reference to the designated exhibit to the
    registrants Quarterly Report on Form 10-Q
    (No. 0-25361) for the quarter ended June 30, 2002.     
|   
|(n) |  | Incorporated by reference to the designated exhibit to the
    registrants Annual Report on Form 10-K
    (No. 0-25361) for the year ended December 31, 2002.       
|   
|(o) |  | Incorporated by reference to the designated exhibit to the
    registrants Quarterly Report on Form 10-Q
    (No. 0-25361) for the quarter ended September 30, 2003.
|   
|(p) |  | Incorporated by reference to the designated exhibit to the
    registrants Quarterly Report on Form 10-Q
    (No. 0-25361) for the quarter ended March 31, 2003.    
|   
|(q) |  | Incorporated by reference to the designated exhibit to the
    registrants Current Report on Form 8-K
    (No. 0-25361) filed April 8, 2004.                        
|   
|(r) |  | Incorporated by reference to the designated exhibit to the
    registrants Quarterly Report on Form 10-Q
    (No. 0-25361) for the quarter ended March 31, 2004.    
|   
|(s) |  | Incorporated by reference to the designated exhibit to the
    registrants Annual Report on Form 10-K
    (No. 0-25361) for the year ended December 31, 2003.       
|   
|(t) |  | Incorporated by reference to the designated exhibit to the
    registrants Current Report on Form 8-K
    (No. 0-25361) filed June 9, 2004.                         
|   
|(u) |  | Incorporated by reference to the designated exhibit to the
    registrants Quarterly Report on Form 10-Q
    (No. 0-25361) for the quarter ended June 30, 2004.     
|   
|(v) |  | Incorporated by reference to the designated exhibit to the
    registrants Current Report on Form 8-K
    (No. 0-25361) filed November 1, 2004.                     
|   
|(w) |  | Incorporated by reference to the designated exhibit to the
    registrants Current Report on Form 8-K
    (No. 0-25361) filed January 26, 2005                      
|   
|(x) |  | Incorporated by reference to the designated exhibit to the
    registrants Current Report on Form 8-K
    (No. 0-25361) filed March 18, 2005.                       

83



---



##### Table of Contents






SIGNATURES






| |                          
| | -------------------------
| | ONYX SOFTWARE CORPORATION



| |     |                       
| | --- | ----------------------
| | By: | /s/ JANICE P. ANDERSON

| |                                      
| | -------------------------------------
| |                                      
| | Janice P. Anderson                   
| | Chief Executive Officer and President

POWER OF ATTORNEY






|                                             |  |                                                                                                           |  |                |  | 
|-------------------------------------------- |  | --------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|Name                                         |  | Title                                                                                                     |  | Date          
|                                             |  |                                                                                                           |  |               
|                                            
|/s/ JANICE P. ANDERSONJanice
    P. Anderson |  | Chief Executive Officer, President and Chairman of the Board
    (Principal Executive Officer)            |  | March 24, 2005
|                                            
|/s/ BRIAN C. HENRYBrian
    C. Henry         |  | Chief Financial Officer and
    Executive Vice President
    (Principal Financial and Accounting Officer) |  | March 24, 2005
|                                            
|/s/ TERESA A. DIALTeresa
    A. Dial         |  | Director                                                                                                  |  | March 24, 2005
|                                            
|/s/ WILLIAM B. ELMOREWilliam
    B. Elmore   |  | Director                                                                                                  |  | March 24, 2005
|                                            
|/s/ BRENT R. FREIBrent
    R. Frei           |  | Director                                                                                                  |  | March 24, 2005
|                                            
|/s/ WILLIAM PORTERWilliam
    Porter         |  | Director                                                                                                  |  | March 24, 2005

84



---



##### Table of Contents



|                                           |  |          |  |                |  | 
|------------------------------------------ |  | -------- |  | -------------- |  | 
|Name                                       |  | Title    |  | Date          
|                                           |  |          |  |               
|                                          
|/s/ DANIEL R. SANTELLDaniel
    R. Santell |  | Director |  | March 24, 2005
|                                          
|/s/ ROBERT M. TARKOFFRobert
    M. Tarkoff |  | Director |  | March 24, 2005

85



---



##### Table of Contents



SCHEDULE II  VALUATION AND QUALIFYING
ACCOUNTS


ONYX SOFTWARE CORPORATION


December 31, 2004


(In thousands)


|                             |                               |                               |  |   |                    |            |  |             |      |   |              |   |            |        |  |   |        |   |  |   |       | 
|---------------------------- | ----------------------------- | ----------------------------- |  | - | ------------------ | ---------- |  | ----------- | ---- | - | ------------ | - | ---------- | ------ |  | - | ------ | - |  | - | ----- | 
|Column A                     |                               | Column B                      |  |   | Column C Additions |            |  | Column D    |      |   | Column E     |  
|                             |                               |                               |  |   |                    |            |  |             |      |   |              |  
|                             |                               |                               |  |   |                    | Charged to |  |             |      |   |             
|                             |                               | Balance at                    |  |   | Charged to         |            |  | Other       |      |   |              |   | Balance at |       
|                             |                               | Beginning                     |  |   | Costs and          |            |  | Accounts   |      |   | Deductions  |   |            | End of | 
|Description                  |                               | of Period                     |  |   | Expenses           |            |  | Describe(1) |      |   | Describe(2)  |   |            | Period | 
|                             |                               |                               |  |   |                    |            |  |             |      |   |              |   |            |        | 
|                             |                               | (In thousands)                | 
|Year ended December 31, 2002 |                               |                               |  |   |                    |            |  |             |      |   |              |   |            |        |  |   |        |   |  |  
|                             | Deducted from asset accounts: |                               |  |   |                    |            |  |             |      |   |              |   |            |        |  |   |        |   |  |   |      
|                             |                               | Accounts receivable allowance |  | $ | 2,079              |            |  | $           |     |   |              | $ |           |        |  | $ | (1,040 | ) |  | $ | 1,039 | 
|Year ended December 31, 2003 |                               |                               |  |   |                    |            |  |             |      |   |              |   |            |        |  |   |        |   |  |  
|                             | Deducted from asset accounts: |                               |  |   |                    |            |  |             |      |   |              |   |            |        |  |   |        |   |  |   |      
|                             |                               | Accounts receivable allowance |  | $ | 1,039              |            |  | $           | (225 | ) |              | $ |           |        |  | $ | (326   | ) |  | $ | 488   | 
|Year ended December 31, 2004 |                               |                               |  |   |                    |            |  |             |      |   |              |   |            |        |  |   |        |   |  |  
|                             | Deducted from asset accounts: |                               |  |   |                    |            |  |             |      |   |              |   |            |        |  |   |        |   |  |   |      
|                             |                               | Accounts receivable allowance |  | $ | 488                |            |  | $           | 44   |   |              | $ | 19         |        |  | $ | (57    | ) |  | $ | 494   | 






|    |                                                       
|--- | ------------------------------------------------------
|(1) | In 2004, amounts charged against revenue.             
|   
|(2) | Uncollectible accounts written off, net of recoveries.

86



---



##### Table of Contents






EXHIBIT INDEX


|       |    |     |             |                                                                                                                                                                                      
|------ | -- | --- | ----------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |    |     | Description
|       |    |     |            
|       | 3  | .1  |             | Restated Articles of Incorporation of the
    registrant(exhibit 3.1)(o)                                                                                                             
|       | 3  | .2  |             | Amended and Restated Bylaws of the registrant
    (exhibit 3.2)(u)                                                                                                                   
|      
|       | 4  | .1  |             | Rights Agreement dated October 25, 1999 between the
    registrant and ChaseMellon Shareholder Services,
    L.L.C.(exhibit 2.1)(b)                                                  
|      
|       | 4  | .2  |             | Amendment No. 1 to Rights Agreement dated March 5,
    2003 between the registrant and Mellon Investor Services LLC
    (exhibit 4.1)(n)                                             
|      
|       | 10 | .1* |             | Lease Termination Agreement dated November 7, 2002 between
    EOP-Sunset North Bellevue, L.L.C. and the registrant
    (exhibit 10.2)(k)                                            
|      
|       | 10 | .2  |             | Form of Indemnification Agreement between the registrant and
    each director and officer of the registrant
    (exhibit 10.12)(a)                                                  
|      
|       | 10 | .3  |             | Amended and Restated 1994 Stock Option Plan
    (exhibit 10.7)(a)                                                                                                                    
|      
|       | 10 | .4  |             | 1998 Stock Incentive Compensation Plan as amended and restated
    on March 21, 2003 (exhibit 10.5)(s)                                                                               
|      
|       | 10 | .5  |             | 2001 Nonofficer Employee Stock Compensation Plan as amended and
    restated April 27, 2001 (exhibit 10.1)(f)                                                                        
|      
|       | 10 | .6  |             | 1998 Employee Stock Purchase Plan as amended and restated
    April 6, 2001 (exhibit 10.1)(h)                                                                                        
|      
|       | 10 | .7  |             | Office Building Lease dated June 6, 2000 between the
    registrant and Bellevue Hines Development, L.L.C. and First
    Amendment to Lease dated June 20, 2000
    (exhibit 10.1)(c)
|      
|       | 10 | .8  |             | Second Amendment to Lease dated August 6, 2000 between the
    registrant and Bellevue Hines Development, L.L.C.
    (exhibit 10.8)(e)                                               
|      
|       | 10 | .9  |             | Third Amendment to Lease dated December 20, 2002 between
    the registrant and Bellevue Hines Development, L.L.C.
    (exhibit 10.2)(l)                                             
|      
|       | 10 | .10 |             | Office Building Lease dated December 20, 2002 between the
    registrant and Bellevue Hines Development, L.L.C.
    (exhibit 10.1)(l)                                                
|      
|       | 10 | .11 |             | Form of Registration Rights Agreement entered into by the
    registrant and Bellevue Hines Development, L.L.C.
    (exhibit 10.3)(l)                                                
|      
|       | 10 | .12 |             | Form of Warrant LT-1 issued to Bellevue Hines Development,
    L.L.C. (exhibit 10.4)(l)                                                                                              
|      
|       | 10 | .13 |             | Form of Warrant LT-2 issued to Bellevue Hines Development,
    L.L.C. (exhibit 10.5)(l)                                                                                              
|      
|       | 10 | .14 |             | Form of Warrant LT-3 issued to Bellevue Hines Development,
    L.L.C. (exhibit 10.6)(l)                                                                                              
|      
|       | 10 | .15 |             | Joint Venture Agreement dated September 14, 2000 between
    the registrant and Prime Systems Corporation
    (exhibit 10.1)(d)                                                      
|      
|       | 10 | .16 |             | Loan and Security Agreement dated February 14, 2002 by and
    between the registrant and Silicon Valley Bank
    (exhibit 10.11)(j)                                                 
|      
|       | 10 | .17 |             | Amendment to Loan Documents dated July 10, 2002 by and
    between the registrant and Silicon Valley Bank
    (exhibit 10.1)(m)                                                      
|      
|       | 10 | .18 |             | Amendment to Loan Documents dated December 27, 2002 by and
    between the registrant and Silicon Valley Bank
    (exhibit 10.19)(n)                                                 
|      
|       | 10 | .19 |             | Amendment to Loan Documents dated March 28, 2003 by and
    between the registrant and Silicon Valley Bank
    (exhibit 10.1)(p)                                                     
|      
|       | 10 | .20 |             | Amendment to Loan Documents dated May 5, 2003 by and
    between the registrant and Silicon Valley Bank
    (exhibit 10.2)(p)                                                        
|      
|       | 10 | .21 |             | Loan and Security Agreement (Exim Program) dated May 5,
    2003 by and between the registrant and Silicon Valley Bank
    (exhibit 10.3)(p)                                         
|      
|       | 10 | .22 |             | Amendment to Loan Documents dated January 12, 2004 by and
    between the registrant and Silicon Valley Bank
    (exhibit 10.23)(s)                                                  
|      
|       | 10 | .23 |             | Amendment to Loan Documents (Exim Program) dated
    January 12, 2004 by and between the registrant and Silicon
    Valley Bank (exhibit 10.24)(s)                                   

87



---



##### Table of Contents



|       |    |      |             |                                                                                                                                                                                        
|------ | -- | ---- | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |    |      | Description
|       |    |      |            
|      
|       | 10 | .24* |             | Amendment to Loan Documents dated March 31, 2004 by and
    between the registrant and Silicon Valley Bank
    (exhibit 10.1)(r)                                                       
|      
|       | 10 | .25  |             | Amendment to Loan Documents (Exim Program) dated March 31,
    2004 by and between the registrant and Silicon Valley Bank
    (exhibit 10.2)(r)                                        
|      
|       | 10 | .26  |             | Intellectual Property Security Agreement dated November 8,
    2000 between the registrant and Silicon Valley Bank
    (exhibit 10.7)(e)                                               
|      
|       | 10 | .27  |             | Employment Agreement dated March 14, 2001 by and between
    the registrant and Brian C. Henry (exhibit 10.1)(g)                                                                       
|      
|       | 10 | .28  |             | Stock Option Agreement dated April 4, 2001 by and between
    the registrant and Brian C. Henry (exhibit 10.3)(g)                                                                      
|      
|       | 10 | .29  |             | Stock Option Agreement dated April 4, 2001 by and between
    the registrant and Brian C. Henry (exhibit 10.4)(g)                                                                      
|      
|       | 10 | .30  |             | Revised Stock Option Agreement dated April 18, 2001 by and
    between the registrant and Brian C. Henry (exhibit 10.3)(f)                                                             
|      
|       | 10 | .31  |             | Amendment to Employment Agreement dated November 14, 2001
    by and between the registrant and Brian C. Henry
    (exhibit 10.2)(i)                                                   
|      
|       | 10 | .32  |             | Second Amendment to Employment Agreement dated April 16,
    2003 by and between the registrant and Brian C. Henry
    (exhibit 10.5)(p)                                               
|      
|       | 10 | .33  |             | Third Amendment to Employment Agreement dated January 1,
    2004 by and between the registrant and Brian C. Henry
    (exhibit 10.1)(u)                                               
|      
|       | 10 | .34  |             | Employment Agreement dated June 26, 2002 by and between the
    registrant and Benjamin E. Kiker, Jr.
    (exhibit 10.29)(n)                                                           
|      
|       | 10 | .35  |             | First Amendment to Employment Agreement dated April 16,
    2003 by and between the registrant and Benjamin E.
    Kiker, Jr. (exhibit 10.6)(p)                                        
|      
|       | 10 | .36  |             | Employment Agreement dated February 19, 2004 by and between
    the registrant and Brent R. Frei (exhibit 10.35)(s)                                                                    
|      
|       | 10 | .37  |             | First Amendment to Employment Agreement dated as of
    July 27, 2004 by and between the registrant and Brent R.
    Frei (exhibit 10.3)(u)                                            
|      
|       | 10 | .38  |             | Letter Agreement dated March 5, 2003 by and between the
    registrant and Mazama Capital Management, Inc.
    (exhibit 10.30)(n)                                                      
|      
|       | 10 | .39  |             | Asset Purchase Agreement dated April 6, 2004 by and among
    Visuale, Inc. Softworks Australia Pty Ltd, certain stockholders
    of Visuale, Inc. and the registrant (exhibit 10.1)(q)
|      
|       | 10 | .40  |             | Employment Agreement dated June 7, 2004 by and between the
    registrant and Janice Anderson (exhibit 10.1)(t)                                                                        
|      
|       | 10 | .41  |             | First Amendment to Employment Agreement dated January 20,
    2005 by and between the registrant and Janice Anderson
    (exhibit 10.1)(w)                                             
|      
|       | 10 | .42  |             | Stock Option Agreement dated June 7, 2004 by and between
    the registrant and Janice Anderson (exhibit 10.2)(t)                                                                      
|      
|       | 10 | .43  |             | Stock Option Agreement dated June 7, 2004 by and between
    the registrant and Janice Anderson (exhibit 10.3)(t)                                                                      
|      
|       | 10 | .44  |             | Stock Option Agreement dated June 7, 2004 by and between
    the registrant and Janice Anderson (exhibit 10.4)(t)                                                                      
|      
|       | 10 | .45  |             | Stock Option Agreement dated June 7, 2004 by and between
    the registrant and Janice Anderson (exhibit 10.5)(t)                                                                      
|      
|       | 10 | .46  |             | Stock Option Agreement dated January 20, 2005 by and
    between the registrant and Janice Anderson (exhibit 10.2)(w)                                                                  
|      
|       | 10 | .47  |             | Employment Agreement dated effective May 25, 2004 by and
    between the registrant and Eben Frankenberg
    (exhibit 10.2)(u)                                                         
|      
|       | 10 | .48  |             | Employment Agreement dated as of September 20, 2004 by and
    between the registrant and Jack Denault (exhibit 10.1)(v)                                                               

88



---



##### Table of Contents



|       |    |     |             |                                                                                                                                                                                                                                                               
|------ | -- | --- | ----------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |    |     | Description
|       |    |     |            
|      
|       | 10 | .49 |             | Employment Agreement between Onyx Software Corporation and
    Robert J. Chamberlain dated March 16, 2005
    (exhibit 10.1)(x)                                                                                                                               
|      
|       | 21 | .1 |             | Subsidiaries of the Registrant                                                                                                                                                                                                                                
|      
|       | 23 | .1 |             | Consent of KPMG LLP, Independent Registered Public Accounting
    Firm                                                                                                                                                                                        
|      
|       | 24 | .1 |             | Power of Attorney (contained on signature page)                                                                                                                                                                                                               
|      
|       | 31 | .1 |             | Certification of Chief Executive Officer pursuant to
    Rules 13a-14(a) and 15d-14(a) under the Securities Exchange
    Act of 1934, as amended                                                                                                              
|      
|       | 31 | .2 |             | Certification of Chief Financial Officer pursuant to
    Rules 13a-14(a) and 15d-14(a) under the Securities Exchange
    Act of 1934, as amended                                                                                                              
|      
|       | 32 | .1 |             | Certification of Chief Executive Officer furnished pursuant to
    Rules 13a-14(b) and 15d-14(b) under the Securities Exchange
    Act of 1934, as amended, and 18 U.S.C. § 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002
|       | 32 | .2 |             | Certification of Chief Financial Officer furnished pursuant to
    Rules 13a-14(b) and 15d-14(b) under the Securities Exchange
    Act of 1934, as amended, and 18 U.S.C. § 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002






| |   |                                                                           
| | - | --------------------------------------------------------------------------
| | * | Confidential treatment has been granted for portions of this
    document.



| |   |                
| | - | ---------------
| |  | Filed herewith.



|    |  |                                                                                                                                                                          
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Incorporated by reference to the designated exhibit to the
    registrants Registration Statement on Form S-1
    (No. 333-68559) filed on December 8, 1998, as amended.
|   
|(b) |  | Incorporated by reference to the designated exhibit to the
    registrants Registration Statement on Form 8-A
    (No. 0-25361) filed on October 28, 1999.              
|   
|(c) |  | Incorporated by reference to the designated exhibit to the
    registrants Quarterly Report on Form 10-Q
    (No. 0-25361) for the quarter ended June 30, 2000.         
|   
|(d) |  | Incorporated by reference to the designated exhibit to the
    registrants Current Report on Form 8-K
    (No. 0-25361) filed October 23, 2000.                         
|   
|(e) |  | Incorporated by reference to the designated exhibit to the
    registrants second Current Report on Form 8-K
    (No. 0-25361) filed February 6, 2001.                  
|   
|(f) |  | Incorporated by reference to the designated exhibit to the
    registrants Quarterly Report on Form 10-K
    (No. 0-25361) for the quarter ended March 31, 2001.        
|   
|(g) |  | Incorporated by reference to the designated exhibit to the
    registrants Current Report on Form 8-K
    (No. 0-25361) filed April 12, 2001.                           
|   
|(h) |  | Incorporated by reference to the designated exhibit to the
    registrants Quarterly Report on Form 10-Q
    (No. 0-25361) for the quarter ended June 30, 2001.         
|   
|(i) |  | Incorporated by reference to the designated exhibit to the
    registrants first Current Report on Form 8-K
    (No. 0-25361) filed January 29, 2002.                   
|   
|(j) |  | Incorporated by reference to the designated exhibit to the
    registrants Annual Report on From 10-K (No. 0-25361)
    for the year ended December 31, 2001.           
|   
|(k) |  | Incorporated by reference to the designated exhibit to the
    registrants Quarterly Report on Form 10-Q
    (No. 0-25361) for the quarter ended September 30, 2002.    
|   
|(l) |  | Incorporated by reference to the designated exhibit to the
    registrants Current Report on Form 8-K
    (No. 0-25361) filed January 13, 2003.                         
|   
|(m) |  | Incorporated by reference to the designated exhibit to the
    registrants Quarterly Report on Form 10-Q
    (No. 0-25361) for the quarter ended June 30, 2002.         
|   
|(n) |  | Incorporated by reference to the designated exhibit to the
    registrants Annual Report on Form 10-K
    (No. 0-25361) for the year ended December 31, 2002.           

89



---



##### Table of Contents





|    |  |                                                                                                                                                                      
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(o) |  | Incorporated by reference to the designated exhibit to the
    registrants Quarterly Report on Form 10-Q
    (No. 0-25361) for the quarter ended September 30, 2003.
|   
|(p) |  | Incorporated by reference to the designated exhibit to the
    registrants Quarterly Report on Form 10-Q
    (No. 0-25361) for the quarter ended March 31, 2003.    
|   
|(q) |  | Incorporated by reference to the designated exhibit to the
    registrants Current Report on Form 8-K
    (No. 0-25361) filed April 8, 2004                         
|   
|(r) |  | Incorporated by reference to the designated exhibit to the
    registrants Quarterly Report on Form 10Q
    (No. 0-25361) for the quarter ended March 31, 2004      
|   
|(s) |  | Incorporated by reference to the designated exhibit to the
    registrants Annual Report on Form 10K
    (No. 0-25361) for the year ended December 31, 2003         
|   
|(t) |  | Incorporated by reference to the designated exhibit to the
    registrants Current Report on Form 8-K
    (No. 0-25361) filed June 9, 2004                          
|   
|(u) |  | Incorporated by reference to the designated exhibit to the
    registrants Quarterly Report on Form 10-Q
    (No. 0-25361) for the quarter ended June 30, 2004      
|   
|(v) |  | Incorporated by reference to the designated exhibit to the
    registrants Current Report on Form 8-K
    (No. 0-25361) filed November 1, 2004                      
|   
|(w) |  | Incorporated by reference to the designated exhibit to the
    registrants Current Report on Form 8-K
    (No. 0-25361) filed January 26, 2005                      
|   
|(x) |  | Incorporated by reference to the designated exhibit to the
    registrants Current Report on Form 8-K
    (No. 0-25361) filed March 18, 2005.                       

90