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

                                    FORM 10-K


[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

     For the fiscal year ended June 30, 2002

                                       OR

[ ]  TRANSITION  REPORT  PURSUANT  TO SECTION  13 OR 15(d) OF THE  SECURITIES
     EXCHANGE ACT OF 1934 For the transition period from ____ to ____


Commission File Number 000-26867

                               PIVOTAL CORPORATION
             (Exact Name of Registrant as Specified in its Charter)


   British Columbia, Canada                             98-0366456
(State or other Jurisdiction of             (IRS Employer Identification Number)
Incorporation or Organization)


                             300-224 West Esplanade
                        North Vancouver, British Columbia
                                     Canada
                                     V7M 3M6
          (Address of Principal Executive Offices, Including Zip Code)


                                 (604) 988-9982
                         (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 Shares
--------------------------------------------------------------------------------
                                (Title of Class)



INDICATE  BY CHECK  MARK  WHETHER  THE  REGISTRANT:  (1) HAS FILED  ALL  REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE  ACT OF
1934  DURING  THE  PRECEDING  12 MONTHS  (OR FOR SUCH  SHORTER  PERIOD  THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH  REPORTS);  AND (2) HAS BEEN SUBJECT TO THE
FILING REQUIREMENTS FOR THE PAST 90 DAYS: Yes [X] No [ ]

INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT  FILERS  PURSUANT TO ITEM 405
OF REGULATION  S-K IS NOT CONTAINED  HEREIN,  AND WILL NOT BE CONTAINED,  TO THE
BEST OF REGISTRANT'S  KNOWLEDGE,  IN DEFINITIVE PROXY OR INFORMATION  STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K: [X]


<PAGE>


The aggregate  market value of the voting shares held by  non-affiliates  of the
Registrant,  based on the closing  sale price of the common  shares on August 1,
2002  as   reported   on  the   Nasdaq   National   Market   was   approximately
U.S.$48,040,474.  Common  shares  held by each  current  executive  officer  and
director and by each person who is known by the  Registrant to own 5% or more of
the outstanding  common shares have been excluded from this  computation in that
such  persons  may  be  deemed  to  be  affiliates  of  the   Registrant.   This
determination  of affiliate status is not a conclusive  determination  for other
purposes.

As  of  August  1,  2002,  24,164,209  common  shares  of  the  Registrant  were
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                 Not Applicable.



<PAGE>


                                TABLE OF CONTENTS



PART I                                                                       1

ITEM 1.    BUSINESS..........................................................1

ITEM 2.    PROPERTIES........................................................29

ITEM 3.    LEGAL PROCEEDINGS.................................................30

ITEM 4.    SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.................30

PART II                                                                      30

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
           STOCKHOLDER MATTERS...............................................30

ITEM 6.    SELECTED FINANCIAL DATA...........................................33

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATION..........................................35

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........49

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................52

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
           AND FINANCIAL DISCLOSURE..........................................82

PART III                                                                     82

ITEM 10.   DIRECTORS AND OFFICERS OF THE REGISTRANT..........................82

ITEM 11.   EXECUTIVE COMPENSATION............................................85

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....88

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................89

PART IV                                                                      90


ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K...90



                                       i
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FORWARD-LOOKING STATEMENTS

Statements  in this  filing  about  our  future  results,  levels  of  activity,
performance,   goals  or   achievements   or  other  future  events   constitute
forward-looking  statements.  These statements  involve known and unknown risks,
uncertainties  and other  factors  that may cause  actual  results  or events to
differ  materially  from those  anticipated in our  forward-looking  statements.
These factors  include,  among others,  those  described in connection  with the
forward-looking   statements,  and  the  factors  described  under  the  heading
"Important  factors that may affect our business,  our results of operations and
our share  price" in Item 1 to this  report,  which is  hereby  incorporated  by
reference in this report.

In some cases, you can identify  forward-looking  statements by our use of words
such  as  "may,"  "will,"   "should,"   "could,"   "expect,"  "plan,"  "intend,"
"anticipate," "believe," "estimate," "predict," "potential" or "continue" or the
negative  or other  variations  of these  words,  or other  comparable  words or
phrases.

Although  we believe  that the  expectations  reflected  in our  forward-looking
statements  are  reasonable,  we  cannot  guarantee  future  results,  levels of
activity, performance, achievements or other future events. Moreover, neither we
nor anyone else assumes  responsibility for the accuracy and completeness of our
forward-looking  statements.  We  are  under  no  duty  to  update  any  of  our
forward-looking  statements after the date of this report.  You should not place
undue reliance on our forward-looking statements.


                                     PART I

ITEM 1.           BUSINESS

OVERVIEW

Pivotal Corporation offers Customer Relationship  Management (CRM) software that
enables  mid-sized  enterprises  worldwide  to acquire,  serve and manage  their
customers.  Pivotal's  target  customers are companies and business units in the
revenue range of $100 million to $3 billion.  Customer  Relationship  Management
products  and  services  automate and manage  marketing,  selling and  servicing
processes.  We refer to our  software as the Pivotal CRM Suite.  The Pivotal CRM
Suite is designed to  complement  and integrate  with a business'  supply chain,
therefore enabling businesses to improve efficiency and increase revenue.

Our  products  are used in 44 countries  and are  available in English,  French,
German,  Spanish,  Portuguese,  Japanese,  Chinese and  Hebrew.  More than 1,500
companies  around  the  world  use  Pivotal,   including:  CIBC,  Centex  Homes,
HarperCollins  Publishers,  Hitachi Telecom Inc., Premera Blue Cross, Royal Bank
of Canada, Southern Company and Vivendi. We market and sell our products through
a direct sales force as well as through third-party solution providers.

Our common  shares are listed on the  Nasdaq  National  Market  under the symbol
"PVTL" and on the Toronto Stock Exchange under the symbol "PVT". Our head office
is located  at 300 - 224 West  Esplanade,  North  Vancouver,  British  Columbia,
Canada V7M 3M6, and our telephone number is (604) 988-9982. Our home page on the
Internet can be found at www.pivotal.com.  Information  contained on our website
does not constitute part of this report.

Pivotal  Corporation was incorporated in British Columbia,  Canada in 1990 under
the name Pen Magic Software Corporation,  and then changed its name to Pen Magic
Software  Inc.  in  1991,  to  Pivotal  Software  Inc.  in 1995  and to  Pivotal
Corporation in 1999. The terms  "Pivotal," "our company" and "we" in this filing
refer to Pivotal  Corporation,  a British Columbia  company,  and all of Pivotal
Corporation's   wholly  owned   subsidiaries   including  Pivotal   Corporation,
incorporated  in  the  State  of  Washington;   Pivotal   Corporation   Limited,
incorporated  in  the  United   Kingdom;   Pivotal   Corporation   France  S.A.,
incorporated in France; Exactium Ltd., incorporated in Israel;  Exactium,  Inc.,
incorporated in the State of Delaware; Pivotal Technologies Corporation Limited,
incorporated  in the Republic of Ireland;  Pivotal  Corporation  (N.I.) Limited,
incorporated in Northern Ireland; Pivotal GmbH, incorporated in Germany; Pivotal
Corporation Australia Pty. Ltd., incorporated in Australia; Project One Business
Technologies Inc., amalgamated in British Columbia,  Canada; Nihon Pivotal K.K.,
incorporated  in Japan;  and 1254590 Ontario Limited  (formerly  Inform,  Inc.),
incorporated in Ontario, Canada.

Pivotal CRM Suite, Pivotal Sales, Pivotal Sales - Miller Heiman Edition, Pivotal
Wireless  for  Sales,  Pivotal  Sales  Analytics,   Pivotal  Marketing,  Pivotal
eMarketing,  Pivotal  Marketing  Analytics,  Pivotal  Service,  Pivotal  Contact
Center,  Pivotal  eService,   Pivotal  Wireless  for  Service,  Pivotal  Service
Analytics,  Pivotal  eSales,  Pivotal  Configurator,  Pivotal  Advisor,  Pivotal
Quoter, Pivotal Catalog, Pivotal ePartner,  Pivotal Partner Management,  Pivotal
Partner Analytics, Pivotal Integration Engine, Pivotal Lifecycle Engine, Pivotal
Syncstream,  Pivotal  Intellisync,  Pivotal Interactive Selling Engine,  Pivotal
Analytics Engine, Pivotal Intelligent Internet Architecture



                                      -1-
<PAGE>

and Pivotal  Wireless are  trademarks  and/or  registered  trademarks of Pivotal
Corporation.  All other company names,  product names, marks, logos, and symbols
referenced are the trademarks and/or  registered  trademarks of their respective
owners.

On January 24, 2002, we announced the  availability of our advanced  integration
product - Pivotal  Integration Engine, a technology that will be embedded in our
products and has been designed to cost-effectively integrate and synchronize our
Customer Relationship Management software with back-office and legacy systems.

INDUSTRY BACKGROUND

In the mid-1980's,  businesses began to implement contact management software to
track prospects,  customers and customer data. Since then, departmental software
products have been developed to track data related to servicing customers on the
demand side of the business.  Some examples of  departmental  software  products
include:  sales force automation software,  which provides prospect and customer
data to sales staff;  customer service software which provides  customer service
request  and  history  to  customer  service   representatives;   and  marketing
automation software to provide campaign, prospect and customer data to marketing
staff  to  generate  more  demand  for  products  and  services.  In the  1990s,
cross-departmental Customer Relationship Management systems began to emerge that
brought departmental data assets together into centralized customer and prospect
data  repositories  while allowing these demand side  departments to input their
own  specific  information,  providing  the company  with a unified  view of the
customer and prospect.  Today,  Customer  Relationship  Management  has become a
business  strategy  that seeks to optimize  profitability,  revenue and customer
satisfaction  by  organizing  around  customer   segments,   fostering  customer
satisfying behaviors and implementing customer-centric processes.

With the  appearance of the Internet in the 1990s as a ubiquitous  communication
network,  companies  began to provide  support  over the  Internet for field and
remote  staff  who  needed  access  to  departmental   data  assets.   As  other
communication channels have continued to evolve, such as fax, email and wireless
communications,  businesses  have looked for  Customer  Relationship  Management
systems that can provide an integrated  "real-time" view of customer information
across  all of  these  communication  channels.  In  addition,  businesses  have
recognized  that the Internet is more than simply a network for  allowing  their
own remote  staff to access  centralized  data  repositories,  with the Internet
providing  a  backbone  for  businesses  to change  the way they  interact  with
business partners and customers.

We  believe  that the  Internet  and other  communication  technologies  such as
wireless  technologies  have  created  a  fundamental  change  in the  way  many
companies   conduct   business.   Today,   the  Internet   goes  beyond   simple
communication.  It provides a means for prospects and customers to interact with
businesses,  and businesses to interact with all their  stakeholders,  including
employees,  customers,  partners and suppliers in "real-time"  across global and
corporate  boundaries.  As a result, there has been a demand for enterprise-wide
software   products  that  support   stakeholders'   needs  to  communicate  and
collaborate with businesses across departments and communication channels.

Today's demand-side and enterprise-wide eBusiness products support this business
need.  These  software  products  automate  and manage the people and  processes
related to customer management in order to increase revenues and decrease costs.
These  enterprise-wide  products tie into companies' supply chain management and
enterprise  resource planning  applications to increase  productivity,  decrease
costs, and increase revenues.

The Impact of Changing Technologies

Developments  in  technology  have  dramatically  affected the  marketplace  for
Customer Relationship Management products. These developments include:

     o    The  Internet.  With  the  emergence  of the  Internet  as a  dominant
          platform  for  global  interactive  communication,   coordination  and
          commerce,  businesses are seeking better ways to use the Internet as a
          platform  to  conduct  their  business.  As a result,  businesses  are
          investing in technologies that support and exploit the capabilities of
          the Internet.  Emerging new technology  standards  based on eXtensible
          Markup   Language  (XML)  and  Web  services  are  being  embraced  by
          enterprises   seeking  to  integrate   internal  systems  and  provide
          collaboration  with partners and suppliers in a drive to reduce costs,
          increase revenues,  increase market  intelligence and improve customer
          satisfaction.   Increasingly,   these   new   technologies   are  also
          supplanting  non-Internet native architectures,  such as client server
          computing.

     o    Widespread Adoption of Microsoft  Technologies.  Microsoft Windows NT,
          Microsoft  Windows 2000 and Microsoft .NET platforms offer  businesses
          the opportunity to develop, deploy and maintain information technology
          systems with


                                      -2-
<PAGE>

          increased  flexibility on a cost-effective  basis. These platforms are
          also widely used and well understood by technical personnel.  With the
          recent addition of Microsoft  Commerce Server 2000, Share Point Server
          2001  and  BizTalk   Server,   Microsoft  is  delivering  a  rich  and
          cost-effective   application   development  platform  to  support  the
          requirement   for   integration,    application    customization   and
          flexibility, and document exchange.

     o    Growth of Wireless Computing.  The proliferation of wireless computing
          devices, such as hand-held computers, Internet-enabled cell phones and
          improved remote computing has empowered the mobile professional. These
          electronic products enable users to access information from almost any
          location using their preferred wireless computing device.

     o    Availability of  Intelligence  Systems.  Intelligence  systems include
          customer profiling  technologies that enable software to respond to or
          anticipate  user needs with less input from the user through  analysis
          of profiles or actual website visitor  behavior.  These include guided
          selling  technologies  to help users make  purchases on the  Internet,
          even   for  very   complex   products   and   services.   With   these
          customer-profiling  technologies,  the customer's buying experience is
          personalized and targeted to fulfill its specific needs.

THE OPPORTUNITY

The  customers we serve are  typically  mid-sized  enterprises  and divisions of
large  businesses.  Many of these  businesses  are  responding  to  pressures to
implement  cross-departmental  or  enterprise-wide  business models that put the
customer at the center of their business in order to increase revenues,  margins
and customer loyalty.

We believe  that the  mid-enterprise  market is  underserved,  and  represents a
significant   opportunity  for  our   enterprise-wide,   customer   relationship
management  suite and  professional  services.  We also  believe that Pivotal is
strongly positioned to deliver meaningful results to mid-sized  enterprises.  We
believe our unique  approach,  product  architecture  and proven rapid  business
implementation methods mean Pivotal products can be more easily customized, more
quickly integrated with current systems and business processes, and more rapidly
deployed to provide  increases in revenues,  margins and customer loyalty faster
and more  cost-effectively  than either shrink-wrap or large enterprise Customer
Relationship Management products.

We believe  that our  products  are closely  aligned with the needs of mid-sized
enterprises,  offering a sensible set of commonly  needed  features  that can be
rapidly  customized to match changing business goals and processes.  Built on an
Intelligent  Internet  Architecture,  Pivotal CRM Suite incorporates many of the
technology components at the core of mid-sized enterprises today,  including the
Internet,  Oracle,  Microsoft  Windows NT,  Microsoft  Windows  2000,  Microsoft
BackOffice, Microsoft .NET server platforms and Oracle databases.

Our services are designed to implement  Customer  Relationship  Management in an
innovative and highly pragmatic manner that sets, tracks and delivers achievable
business   results.   Pivotal's   proven  services   approach  allows  mid-sized
enterprises  to implement  and evolve  their  Customer  Relationship  Management
systems  iteratively  over time,  ensuring  each goal is met, and all  customer,
partner and employee needs are addressed.  We believe that our partners are best
suited to address the mid-enterprise  market.  While platform partners Intel and
Microsoft constitute the underlying  architecture in most mid-sized enterprises,
our worldwide network of Customer Relationship Management  strategists,  product
experts  and   certified   Pivotal   partners   understand   the  needs  of  the
mid-enterprise, and ensure achievable business results are delivered rapidly and
professionally.

We believe  that our  business  style  mirrors  the way that the  mid-enterprise
market wants to do business:  straightforward,  respectful and  responsive.  Our
marketing,  selling and  servicing  initiatives  are  tailored to the  pragmatic
business  style  of  mid-sized   enterprises,   establishing   a   collaborative
relationship  contracts.  As a result,  we  believe  that the cost of  Pivotal's
products and services are more predictable  than our  competitors,  addressing a
principal concern of mid-sized enterprises.

PIVOTAL PRODUCTS

Our  suite  includes   applications  for  sales  force   automation,   marketing
automation,  service automation, contact center management, partner relationship
management and electronic commerce.  These products enable companies to increase
revenues and decrease costs by increasing efficiency within the sales, marketing
and  service  activities  that  ultimately  increase  customer  acquisition  and
loyalty. To achieve this, our products connect employees, partners and customers
into  one  unified  business  network.   Our  products  include   award-winning,
Internet-based  applications  supported by an array of professional services and
our global Pivotal  Partner  Program  network of third-party  distributors.  Our
products are designed  and  optimized  for the  Internet,  Microsoft,  Intel and
Oracle platforms.

We believe our products:



                                      -3-
<PAGE>

     o    Enable Businesses to Increase Revenues,  Margins and Customer Loyalty.
          Our products unify sales, marketing and customer service employees and
          partners around customer  processes and  interactions.  By maintaining
          all customer  information in a shared  database,  our products make it
          easy for different  users to maximize their  contribution  to customer
          relationship  management  by better  capturing  customer  profiles and
          building   one-to-one   customer   relationships.   We  believe   this
          improvement in customer focus enables  businesses to increase revenues
          through  improving  customer  loyalty,  which  increases both customer
          retention and customer net value. Our customers also realize decreased
          costs by streamlining  processes and interactions  between  employees,
          partners and  customers,  through  more  effective  and more  targeted
          marketing,  sales and service campaigns,  the reduction of inefficient
          communications,   and  the   increased   effectiveness   of   targeted
          communications efforts.

     o    Improve the Collaboration and Interaction Between Businesses and Their
          Customers.  Using Pivotal  products,  businesses  can transform  their
          static  websites  into  collaborative  tools  used to  increase  their
          customer  bases,  and to  service  and  sell  to  existing  customers.
          Prospective  customers can obtain  information  regarding  businesses'
          products and services  over the  Internet.  Customers can place orders
          and retrieve  information  on products and services  over the Internet
          and  directly  interact  online with  sales,  marketing  and  customer
          service  departments.  This direct  interaction can result in improved
          customer  service and  generation of leads,  as well as lower customer
          service costs.

     o    Improve the Collaboration and Interaction Between Businesses and Their
          Partners.   Pivotal  products  enable   businesses  to  improve  their
          efficiency  and selling  processes  by  facilitating  interaction  and
          collaboration  with their partners over the Internet.  Our application
          maintains  a shared  database  consisting  of  customers'  information
          related  to   products,   services,   customer   contacts   and  sales
          opportunities.  By  enabling  their  partners to access and update the
          shared  database,  our products  simplify  the sharing of  information
          between  businesses  and their  partners so they can  jointly  service
          their customers' needs and concerns.

     o    Enable Rapid Implementation and Simple  Customization.  Businesses can
          use our products without significant customization, thereby expediting
          the implementation  process. If they so desire,  businesses can easily
          customize our products to reflect their own internal  processes  using
          the  industry-standard,  business  programming  language of  Microsoft
          Visual Basic.  In addition,  businesses can choose one of our products
          for a  particular  industry  vertical  or  micro-vertical  -  products
          already  optimized  and  configured  for such  industries as financial
          services  and  healthcare,   as  well  as  specific   segments  within
          industries,  including Retail Banking,  Investment Banking, Healthcare
          Insurance  and  Real   Estate/Construction.   These  industry-specific
          products allow businesses to immediately gain business  benefits as we
          have already done the industry-specific customizations.

     o    Yield  a  Low  Total  Cost  of   Ownership.   Our   products   can  be
          cost-effectively   deployed  and   customized  and  thus  require  few
          resources  for  ongoing  support,   system  maintenance  and  end-user
          training.  Our  products  are also  relatively  easy for  end-users to
          learn, which results in lower ongoing training costs. In addition, our
          software   applications  permit   modifications  and  upgrades  to  be
          transmitted to all users, including mobile users, thereby reducing the
          cost of customization and administration.

     o    Scale  With the  Growing  Needs of  Pivotal's  Customers.  Many of our
          customers  require that our products  support their growing  number of
          employees,  online customers and partners. Our underlying architecture
          enables our customers to expand our products as their  businesses grow
          by adding servers in a number of locations.  This capability  improves
          performance  and enables our  products  to support  larger  numbers of
          concurrent users.

     o    Increase the Efficiency of Mobile Professionals.  Mobile professionals
          can access our products remotely across local-area networks, wide-area
          networks or over the Internet by using a number of portable  computing
          devices including laptops,  hand-held  computers and  Internet-enabled
          cell phones. Mobile professionals also can work disconnected,  logging
          on to transmit  and receive  information  that  automatically  updates
          their own files and the shared corporate database.  These capabilities
          increase the efficiency of mobile professionals.

BUSINESS STRATEGY

Our goal is to continue  our efforts to maintain  and increase our position as a
leading  global  provider of  Customer  Relationship  Management  systems in the
mid-market. The key elements of our growth strategy are as follows:



                                      -4-
<PAGE>

     o    Extend  Application  and  Product  Scope.  We intend to  continue  the
          development  of  our  applications  to  add  new  functions,  such  as
          additional contact center and web-enabled  service  functionality.  We
          also intend to  continue to develop  industry  products  for  specific
          industry segments  ("micro-verticals")  that will further simplify the
          deployment and use of our applications.  In addition, we plan to offer
          new  versions  of our  applications  that  support a wider  variety of
          international  customers and their respective  business  practices and
          languages.

     o    Deepen   Collaboration   and  Interaction   Between  Pivotal  and  Our
          Customers.  We will continue to focus on providing  customer  products
          that help our customers  achieve business success.  In particular,  we
          plan  to  maintain  a  customer-focused  culture  by  inviting  repeat
          business  from existing  customers as we make new features  available,
          and to gain new customers as our existing customers become independent
          references  for our  products.  We believe  that the  benefits  of our
          products have helped us to develop a loyal base of customers.

     o    Continue  Expansion  of  Our  Worldwide   Distribution   Capacity.  We
          currently  have a  distribution  strategy that  includes  direct sales
          personnel and  resellers  which enables us to target a wide variety of
          customers  in  different  industries  and  geographical  regions.  Our
          current  plans  call  for   continued   investment  in  our  worldwide
          distribution  capacity to increase market share and penetration.  This
          investment  will  include  continuing  to  expand  relationships  with
          existing and new resellers  and entering  into  bundling  arrangements
          with technology  providers to provide  complementary niche products to
          our customers.

     o    Deepen  Collaboration  and  Interaction  with  Members of the  Pivotal
          Partner  Program.  We plan to  continue  strengthening  our network of
          strategic   relationships,   including  our  Pivotal  Partner  Program
          network.  The Pivotal  Partner Program  network  includes  independent
          companies that distribute our products, install the software purchased
          by our  customers and provide  other  software or related  services to
          address specific  customer needs. This network has allowed us to focus
          on our core  competencies  while taking  advantage of the strengths of
          Pivotal  Partner  Program  members  who  may  have  specific  industry
          expertise or better  regional  presence,  which enables them to better
          address the needs of our  customers  and provide  them with a complete
          electronic business product.

     o    Extend Relationships with Application Service Providers to Deliver Our
          Products  on a  Usage  Fee  Basis.  We will  continue  to  expand  our
          relationships  with  application   service  providers  to  provide  an
          alternative    licensing   arrangement   through   these   third-party
          application  service  providers that enables  customers to pay a usage
          fee to access our  software  on servers  operated  by the  application
          service   providers.   This  enables  businesses  to  outsource  their
          electronic  business  products  and  related  information   technology
          infrastructure through an alternative pricing model, such as a monthly
          fee.


PRODUCTS AND PROFESSIONAL SERVICES

Pivotal CRM Suite consists of five product  suites that help  companies  control
the sales,  marketing,  service and partner  processes core to their businesses.
These suites are: Pivotal Sales,  Pivotal  Marketing,  Pivotal Service,  Pivotal
Interactive Selling and Pivotal Partner Management.  In addition, we also market
industry vertical products.

These product suites are comprised of our core  applications  including  Pivotal
Sales,  Pivotal  Sales - Miller  Heiman  Edition,  Pivotal  Wireless  for Sales,
Pivotal  Sales  Analytics,  Pivotal  Marketing,   Pivotal  eMarketing,   Pivotal
Marketing Analytics,  Pivotal Service, Pivotal Contact Center, Pivotal eService,
Pivotal Wireless for Service, Pivotal Service Analytics, Pivotal eSales, Pivotal
Configurator,   Pivotal  Advisor,   Pivotal  Quoter,  Pivotal  Catalog,  Pivotal
ePartner,  Pivotal Partner Management, and Pivotal Partner Analytics. These core
applications  and  other  leading  technology  options  provide  an  integrated,
collaborative  network  that  helps to  manage  information,  transactions,  and
interactions for every stakeholder in the customer lifecycle.

On January 24, 2002,  Pivotal released its advanced  integration  product called
Integration  Engine,  which  is  designed  to  cost-effectively   integrate  and
synchronize  Pivotal's  software  with  back-office  and  legacy  systems of our
customers.

PIVOTAL PRODUCT SUITES

Our five product suites are comprised of a variety of core applications.

The Pivotal Sales Suite

Pivotal Sales provides critical  customer  information,  opportunity  management
tools, and "best practices" sales  methodologies for the enterprise sales force.
The core capabilities of the Pivotal Sales product suite include:


                                      -5-
<PAGE>

     o    Quote and Proposal Management
     o    Consolidated Revenue Forecast
     o    Territory Management
     o    Opportunity Management
     o    Team-Selling Enablement
     o    Best Practices Enablement
     o    Multi-Channel Sales Integration
     o    Real-Time Product Configuration
     o    Expense Management
     o    Sales Efficiency Tools
     o    Campaign Management
     o    Web-based Collaborative Services
     o    Up/Cross-Selling Automation
     o    Competitive and Industry Intelligence

Core Applications of the Pivotal Sales Suite

Pivotal Sales enables global sales organizations to sell collaboratively  across
multiple regions, currencies and channels. With Pivotal Sales, organizations can
share information across sales teams, accurately forecast their business, manage
pipelines,  automatically  generate quotes and proposals,  and easily  configure
products and services that meet specific customer needs.

Pivotal  Sales -- Miller  Heiman  Edition  is an option  for the  Pivotal  Sales
application  based on the three most popular  disciplines -- Strategic  Selling,
Conceptual Selling,  and Large Account Management -- as taught by Miller Heiman,
a leader in sales methodologies.

Pivotal  Wireless for Sales enables  mobile  employees  real-time read and write
access to critical  customer  data.  Using  wireless,  hand held devices such as
web-enabled cell phones,  personal digital assistants (PDAs) and two-way pagers,
mobile  employees can make informed,  timely  decisions that result in immediate
response to opportunities and increased sales while in the field.

Pivotal  Sales   Analytics  is  an  analytics   package  that   provides   sales
professionals with a Web-based tool for data mining and forecast analysis.  With
the ability to analyze sales history, order history,  market trends, among other
things at their  fingertips,  sales managers can accurately  forecast across all
channels,  analyze sales performance by region,  identify trends in sales cycle,
and extract the knowledge and insight to drive better business decisions.

The Pivotal Marketing Suite

Pivotal  Marketing gives  enterprises the information and processes they need to
analyze  their  customers'  lifecycles,  identify  diverse  opportunities,   and
maximize the most  profitable  relationships.  Core  capabilities of the Pivotal
Marketing product suite include:

     o    Campaign Management
     o    Lead Capturing and Tracking
     o    Centralized Data Repository
     o    Forecasting: Campaign Impact, Market Shifts and Customer Perception
     o    Customer Profiling
     o    Event Management
     o    ROI Calculation and Analysis
     o    Best Practices
     o    Data Mining
     o    Customer Analysis
     o    Direct Mail Campaign Management
     o    Collaborative Action Plans

Core Applications of the Pivotal Marketing Suite

Pivotal  Marketing  delivers  a  closed-loop  marketing  product  that  includes
campaign design,  collaborative  marketing action plans,  campaign execution and
lead tracking across multiple channels (phone,  direct mail, Internet and email)
for direct and partner channels.


                                      -6-
<PAGE>

With Pivotal Marketing,  marketing  professionals maximize profitability through
one-to-one  marketing  strategies  that deliver  optimal  customer  acquisition,
retention, cross-selling and up-selling results.

Pivotal  eMarketing  extends the power of our Pivotal  Marketing  product to the
Internet.   Pivotal  eMarketing  allows  companies  to  take  advantage  of  the
cost-effectiveness   of   internet-based   marketing  through  online  marketing
research,  lead capturing and tracking,  collateral distribution and management,
and email  campaign  management.  Seamless  integration  with Pivotal  Marketing
ensures that  organizations can provide a consistent and personalized  marketing
experience.

Pivotal  Marketing  Analytics is an analytics  package that  provides  marketing
professionals with a Web-based tool for data mining and data analysis.  With the
ability to analyze such things as customer profiles, purchasing history, product
preferences and market trends at their fingertips, marketing managers can better
understand their customer buying preferences,  product  profitability,  campaign
effectiveness  and have the  knowledge  and insight to more  effectively  target
prospects and drive better business decisions.

The Pivotal Service Suite

Pivotal Service provides customer service  professionals  with a robust solution
to efficiently capture, track, manage, escalate, and resolve customer service or
support  requests.  Core  capabilities  of the  Pivotal  Service  product  suite
include:

     o    Integrated Communication Platform
     o    Multi-Channel Interactions
     o    End-to-End Reporting
     o    Service Request Management
     o    Online Request Tracking and Escalation
     o    Service-to-Order Integration
     o    Personalized, 24x7 Self-Service
     o    Online FAQ
     o    IVR Self-Service
     o    Knowledge Base Management
     o    Sales/Marketing Integration
     o    Market-Driven Product Enhancement
     o    Time and Activity Management
     o    Productivity and Performance Monitoring and Reporting


Core Application of the Pivotal Service Suite

Pivotal Service is an Internet-based  customer service application for employees
that enables companies to build customer loyalty, increase revenues and optimize
call center performance.  Pivotal Service automates the capture,  management and
resolution of customer service and support requests across multiple channels. It
integrates with sales and marketing  functions to provide service  professionals
with the tools and  information  they need to deliver  personalized  service for
improved customer satisfaction.

Pivotal Contact Center transforms  Pivotal's  customer's call center into a next
generation   contact  center  that  supports   multiple   channels  of  customer
interactions,  including voice,  email, text chat, Internet  collaboration,  and
fax.  By  managing   customer   interactions   across  all   channels,   service
organizations  have the tools  and  information  they  need to  cost-effectively
deliver excellence in customer service.

Pivotal eService helps  organizations to reduce the cost of service by extending
service request  management to the Internet.  Pivotal eService  supports inbound
email  management  and  provides  a  comprehensive,   self-service  Website  for
customers to quickly resolve their own problems through an online knowledge base
and  frequently-asked-questions  section  (FAQ),  and the  ability to create and
review incidents,  escalate to service experts,  or register products for future
service.

Pivotal Wireless for Service enables mobile  employees  real-time read and write
access to critical  customer  data using  wireless,  hand held  devices  such as
Web-enabled cell phones,  personal digital assistants (PDAs) and two-way pagers.
Based on the Pivotal  Intelligent  Internet  Architecture,  Pivotal Wireless for
Service offers a highly flexible product easily tailored to Pivotal's customer's
service  employee  needs,  to  increase  productivity,   immediate  response  to
incidents, service level agreements, increased customer satisfaction and up-sell
opportunities anytime in the field.



                                      -7-
<PAGE>

Pivotal Service  Analytics  provides service  professionals  with data analysis.
With the ability to analyze customer service request data over various channels,
service managers can better  understand their customers'  preferences,  resource
utilization, service activity and performance and have the knowledge and insight
to more effectively ensure customer satisfaction.

The Pivotal Interactive Selling Suite

Pivotal  Interactive  Selling is a  comprehensive  product  suite  that  enables
companies to deliver a  personalized  online  buying or selling  experience  for
customers and sales  professionals.  Pivotal  Interactive Selling simplifies the
buying and selling  experience  of  sophisticated  products  and  services  with
interactive needs analysis and intelligent guided-selling services.

Through Pivotal Interactive Selling,  organizations increase sales effectiveness
across all channels via comprehensive needs analysis, product cataloging,  fixed
and dynamic pricing, and configuration capabilities. Pivotal Interactive Selling
has the following core features:

     o    Data Repository: Product, Pricing, Sales Data
     o    Dynamic Proposals, Quotes, Reports, Orders
     o    Browser-Based Authoring Environment
     o    Catalog Management
     o    Configuration Management
     o    Guided Product, Pricing, Service Configuration
     o    Web-Based Product and Configuration Management
     o    Site Management
     o    Multi-Currency, Language
     o    Single Source Shipping and Tracking
     o    Quote and Proposal Management
     o    Multi-Channel Sales Management
     o    Integration  with Supply  Chain  Management  and  Enterprise  Resource
          Planning Systems

Core Applications of the Pivotal Interactive Selling Suite

Pivotal   eSales   enables   organizations   to  leverage   the  Internet  as  a
cost-effective selling channel. With Pivotal eSales,  organizations can leverage
interactive  selling  integration to offer a rich and personalized online buying
experience.  Customers  have access to  detailed  product  catalogs  and product
information  and  guided  needs  assessment  support to help  configure  complex
orders.

Pivotal Configurator creates modeling of products,  services, or processes using
data,  rules,  constraints,  relationships,  and options.  Pivotal  Configurator
provides a  comprehensive  product  that ensures  complex  orders and quotes are
accurate,  complete,  and valid.  It enforces  business  rules while  delivering
context-based messages that facilitate up-selling and cross-selling,  leading to
higher value orders.  Used  internally to improve sales  productivity  and order
accuracy,  or externally  via a company's  Website to help guide buyers  through
product  selection and  customization,  Pivotal  Configurator  allows customers,
employees and partners to configure products to meet customer's needs.

Pivotal eAdvisor is designed to help customers select and purchase  products and
services via multiple channels.  Pivotal eAdvisor helps companies to explore and
understand  the  unique  needs  of each  customer  and  advise  on the  specific
recommendations that will meet those needs.

Pivotal  Quoter  manages the ability to  automatically  generate  quotations and
proposals.

Pivotal  Catalog  manages  the  database  and  publishing  of product or product
offerings,  their  pricing  and  attributes,  as  well  as the  necessary  sales
encyclopedia of applicable product information.

The Pivotal Partner Management Suite

Pivotal Partner  Management  empowers companies to more effectively manage their
partner  relationships.  Pivotal Partner  Management helps Pivotal's  customers'
partners to become  collaborative  members of that customer's  extended business
team to generate sales,  deliver  customer value,  and keep customers  satisfied
while  reducing the costs  associated  with  managing  those



                                      -8-
<PAGE>

partners.  Pivotal  Partner  Management  creates a  collaborative  inter-company
framework  to  exchange  knowledge,   manage   relationships,   and  synchronize
transactions over marketing, sales, service, and commerce processes.

The complete  Pivotal  Partner  Management  application  suite consists of three
components Pivotal ePartner,  Partner Management, and Pivotal Partner Analytics.
Core features include:

     o    Partner Lifecycle Management
     o    Recruitment Management
     o    Partner Profiling
     o    Closed-loop Lead Management
     o    Sales Tools and Literature Fulfillment
     o    24x7 Order Entry and Tracking
     o    Best Practice Action Plans
     o    Opportunity Management and Forecasting
     o    Marketing Management
     o    Knowledge Base Access
     o    Alliance Management
     o    Partner Performance Reporting and Analytics
     o    Personalized, Role-based Security


Core Applications of the Pivotal Partner Management Suite

Pivotal  ePartner is a  browser-based  product  that extends  marketing,  sales,
service and ordering  capabilities to Pivotal's  customers'  business  partners,
enabling them to become effective members of the customers'  extended enterprise
to generate sales and deliver customer value. In addition,  the Pivotal ePartner
ensures that partners are kept  up-to-date  by providing  easy access to product
information,  training,  sales tools, transaction data, and performance analysis
reports.

Pivotal Partner Management is a comprehensive  internal tool used to help manage
and enable partner  relationships  and operations.  Pivotal  Partner  Management
enables  organizations  to  collaboratively  sell,  service  and  market  to end
customers, and measure and reward the partner community.

Pivotal Partner Analytics is an analytics package that provides channel managers
with an  Internet-based  tool for data mining and data  analysis.  With detailed
information  on the  performance  and  profitability  of the partner  network by
individual partner or segment,  or regions,  channel managers have the knowledge
and insight they need to make better business decisions.

Pivotal Industry  Specific  Products We provide industry vertical products aimed
at the financial  services,  healthcare  insurance and real  estate/construction
markets.

     o    The Pivotal CRM Suite for Investment Banking provides a web-integrated
          template that facilitates the creation of a collaborative framework to
          manage clients,  exchange research and close transactions.  We believe
          that by  using  this  product,  the  corporate  finance,  trading  and
          research groups engaged in investment banking become a more effective,
          collaborative  team,  better  able  to  identify  hot  leads,  deliver
          targeted research and close the most profitable revenue opportunities.
          The  advantages  may include  faster return on  investment,  increased
          revenues and increased  customer  satisfaction.  Pivotal CRM Suite for
          Investment    Banking    delivers    commonly    needed,    investment
          banking-specific features, providing investment banks with the ability
          to quickly  customize,  integrate  and deploy a product  that  matches
          their individual business processes.

     o    The Pivotal  CRM Suite for  Healthcare  Insurance  is designed to link
          health insurance company employees with independent  agents,  employer
          groups and members in a  collaborative  sales,  marketing  and service
          environment.  With this offering,  healthcare  insurance companies can
          bolster  sales and  marketing,  agency  relations,  underwriting,  and
          operations, with cross-enterprise  collaboration.  Using the offering,
          healthcare  insurers  and  agents  can  quickly  respond  to  business
          requests and inquiries in real-time,  reduce administrative costs, and
          increase premium revenues.

     o    The  Pivotal  CRM  Suite  for  Real  Estate/Construction   provides  a
          web-integrated   template   that   facilitates   the   creation  of  a
          collaborative framework to manage clients, exchange research and close
          transactions.  The sales agents,  marketers and



                                      -9-
<PAGE>

          management  teams that  drive  homebuilders  become a more  effective,
          collaborative  team,  better  able to track  leads,  manage  the sales
          process and involve  customers in the pre- and post-sales  cycle.  The
          advantages  may  include   increased   revenues,   enhanced   customer
          satisfaction and decreased operating costs. Pivotal CRM Suite for Real
          Estate/Construction  delivers  commonly needed,  homebuilding-specific
          features,  allowing  homebuilders to support their individual business
          processes in a customized fashion.

PRODUCT PRICING

We typically license our products on a "per processor" or "named user" basis. We
license our applications on a "flat fee" basis. All our products may be licensed
on a monthly subscription basis or as a one-time fee for perpetual licenses.

PRODUCT AWARDS

The following  table lists some of the awards our company  and/or  products have
won:

<TABLE>
   SPONSOR                                       DATE                AWARD
   -------                                       ----                -----
   <S>                                           <C>                 <C>
   Profit 100                                    June 2002           Ranked #2 in Profit 100 Canada's Fastest Growing Companies

   Microsoft                                     June 2002           Microsoft .Net Server Innovation Award
                                                                     - Most Innovative CRM-integrated Contact Center
                                                                        Implementation

   Information Systems Marketing                 February 2002       Top 15 CRM Software Award

   Deloitte & Touche                             November 2001       Canadian Technology Fast 50

   Deloitte & Touche                             November 2001       Technology Fast 500

   Profit 100                                    June 2001           Ranked #2 in Profit 100 Canada's Fastest Growing Companies

   Aberdeen Group                                April 2001          Aberdeen List of Top Ten Significant CRM Applications for
                                                                     2000

   Information Systems Marketing                 February 2001       Top 15 CRM Software Award

   Microsoft                                     December 2000       Industry Solution Awards for 2000
                                                                     - Best Integrated Customer Relationship Management/eBusiness
                                                                     Solution

   Deloitte & Touche                             November 2000       Technology Fast 500

   Deloitte & Touche                             September 2000      Fastest Growing Canadian Technology Company

   start Magazine                                July 2000           Hottest Companies of 2000

   Microsoft                                     July 2000           North American Packaged Application Partner of the Year

   British Columbia Technology Industry          June 2000           Company of the Year
     Association

   Information Systems Marketing                 February 2000       Top 15 CRM Software Award

   Upside Magazine                               February 2000       eBusiness Winner

   Microsoft                                     February 2000       World Record for Scalability and Performance

   Microsoft                                     December 1999       Industry Solution Awards for 1999
                                                                     - Best Internet Solution for Customer Service
                                                                     - Best Integrated Customer Relationship Management

   Information Week Magazine                     February 1999       IT Innovators for 1999

   Information Systems Marketing                 February 1999       Top 15 CRM Software Award

   Open Systems Advisors                         January 1999        Crossroads 99 A-List Award

   Microsoft                                     December 1998       Industry Solution Awards for 1998 - Best Overall Customer
                                                                         Relationship Management Solution
</TABLE>


                                      -10-
<PAGE>

<TABLE>
   <S>                                           <C>                 <C>
   Information Systems Marketing                 December 1997       Top 15 CRM Software Award

   Microsoft                                     December 1997       Industry Solution Awards -- Best Mobile Sales Solution

   Microsoft                                     May 1997            Solutions Provider Awards -- Best Solution by a Solution
                                                                         Developer

   Information Systems Marketing                 December 1996       Top 15 CRM Software Award
</TABLE>

PROFESSIONAL SERVICES

We provide  customers with access to a combination  of services to  successfully
implement  and  effectively  maintain a  Customer  Relationship  Management  and
electronic business product.

These services include:

     -    Business  Consulting.  The Pivotal Rapid Business Impact Group ensures
          that our clients are  positioned  properly  to  identify,  measure and
          achieve business results from their Customer  Relationship  Management
          initiative by delivering on the Pivotal Results Program.  According to
          analysts,   more  than  half  of  Customer   Relationship   Management
          initiatives  will  fail  to  meet  measurable  benefit  objectives  or
          positively  affect  return  on  investment  due to a lack of  business
          processes for conducting ongoing measurements.  Pivotal Rapid Business
          Impact Group increases the chances of Customer Relationship Management
          success by working  with  companies  to identify  measurable  business
          objectives and provide a sensible path to reach them.

     -    Technical  Consulting.  Pivotal Technical Consulting Services Group is
          dedicated to successful implementation. By working closely with client
          companies  to  understand  their  business  needs,  this team helps to
          design and deploy Customer  Relationship  Management systems that fits
          their business  objectives.  The Technical  Consulting  Group delivers
          practical  expertise  in project  management,  business  analysis  and
          technology.  This team  helps  companies  to  become  self-sufficient,
          sharing  knowledge  and  transferring   skills  that  become  valuable
          internal assets in the long term.  Furthermore,  it directly leverages
          the resources of Pivotal  Research and  Development and Global Support
          Services to increase customer satisfaction.

     -    Integration  Services.  Pivotal Integration Services Group specializes
          in the smooth,  efficient and  cost-effective  integration of Customer
          Relationship  Management across multiple  existing systems.  In recent
          years,  many  businesses  have deployed  disparate  systems to support
          their sales,  marketing and service processes of the front office, and
          the accounting,  manufacturing,  human resources, and order processing
          functions  of the  back  office.  This  creates  a silo  effect  where
          valuable  information  is locked in separate  databases  and available
          only in  separate  document  formats,  which  use  different  business
          processes,   workflows,   and  communication  protocols.  The  Pivotal
          Integration Services Group provides the technology expertise necessary
          to remove these silos and unify multiple systems.

     -    Education.  Pivotal  Education  Services  Group  ensures  that  client
          companies  effectively  adopt  and  use  their  Customer  Relationship
          Management  system,   delivering  customized  training  that  fits  to
          business  needs.  The  result  is  twofold:  everyday  users  that are
          confident  and   knowledgeable,   plus  trained   in-house   "Customer
          Relationship  Management  champions"  that lead each  company to fully
          adopt,  develop,  administer and use the system  effectively.  Pivotal
          Education  Services  has  the  flexibility  to  meet  unique  training
          requirements,  and the  bandwidth  to rapidly and  conveniently  train
          large  numbers  of  employees.   Furthermore,   companies  choose  the
          education format that they feel works best for their business.

     -    Global Support.  Pivotal Global Support Services Group protects client
          companies against downtime by resolving  technical  issues.  Companies
          gain practical expertise via telephone,  Web and email. In addition, a
          self-serve   knowledgebase  points  customers  to  the  right  problem
          resolution.   From  incident  management  to  complete  documentation,
          Pivotal Global Support delivers insight and practical expertise.  This
          team delivers cost-effective,  prompt and convenient guidance for each
          client company.

     -    Technical  Account  Managers.  Pivotal  Technical Account Managers are
          tasked with:  ensuring the technical  success of Pivotal  deployments.
          They  are  technology  advisors,  working  with  companies  to  ensure
          business fit over the  long-term.  With a  comprehensive  knowledge of
          current and future Pivotal  technologies,  Technical  Account Managers
          help  companies  to  efficiently   invest  in  Customer   Relationship
          Management.



                                      -11-
<PAGE>

Substantially all of our business consulting  services and integration  services
are priced on a time and materials  basis and  occasionally  we enter into fixed
contract  arrangements for implementations.  Our education fees are standardized
on a per day rate. Our global support and maintenance services are sold on a per
license basis and renewed annually.

CUSTOMERS AND MARKETS

We have  licensed  our  applications  on a  worldwide  basis to more than  1,500
customers  across  a wide  range  of  industries.  Customers  in  North  America
accounted  for 53%,  67%, and 72% of our total  revenues in the years ended June
30, 2002,  2001, and 2000,  respectively.  Customers in Canada accounted for 4%,
12%, and 11% of our total  revenues in the years ended June 30,  2002,  2001 and
2000,  respectively.  Customers in the U.S.  accounted  for 49%, 55%, and 61% of
total  revenues  in these  years.  Customers  in Europe,  Middle East and Africa
accounted for 37%, 25% and 21% of our total revenues in the years ended June 30,
2002, 2001 and 2000,  respectively.  Customers in Asia Pacific and Latin America
accounted for 10%, 8% and 7% of total revenues in the years ended June 30, 2002,
2001 and 2000, respectively.

We have  property and  equipment  in various  geographic  regions.  Property and
equipment in the United States  accounted for 23%, 16% and 22% of total property
and  equipment  at June 30,  2002,  2001 and 2000,  respectively.  Property  and
equipment  in  Canada  accounted  for  46%,  65% and 64% of total  property  and
equipment at June 30, 2002, 2001 and 2000, respectively.  Property and equipment
held  outside  the U.S.  and  Canada  accounted  for  31%,  19% and 14% of total
property and equipment at June 30, 2002, 2001 and 2000, respectively.

No single customer accounted for 10% or more of our consolidated revenues during
the years  ended June 30,  2002,  June 30,  2001 or June 30,  2000.  Some of our
customers  that  purchased a minimum of US$100,000 of software  licenses from us
prior to June 30, 2002, are set forth in the table below:

<TABLE>
<S>                                              <C>                                        <C>
CONSULTING                                       MANUFACTURING                              TECHNOLOGY
----------                                       -------------                              ----------
Burntsand Inc.                                   Foss Electric A/S                          Captivate Network, Inc.
KPMG  SA                                         IMI Norgren Limited                        Compaq Computer Corporation
KPMG Consulting AG                               James Hardie Industries Limited            ProClarity Corporation
KPMG Peat Marwick LLP                            Newport Corporation                        Allen Systems Group, Inc.
Net-Commerce                                     Siemens SAS                                Crystal Decisions Corporation
The Wynford Group                                Teknion Corporation                        Software Spectrum Inc.
Sapient Corporation                              Toshiba Corporation                        VERITAS Software Corporation
                                                 Wilo GmbH                                  Somera Communications
FINANCIAL SERVICES                               Atlas Copco
------------------                               Simkar Corporation
BoE Bank Limited                                 Centex Homes                               RETAIL
CIBC World Markets                                                                          ------
The Common Fund for Nonprofit                    TELECOMMUNICATIONS
Organizations                                    ------------------                         Wickes Building Supply Supplies Limited
Dresdner RCM Global Investors (UK) Ltd                                                      Warehouse Stationery
Farm Credit Services                             Alcatel e-Business Distribution GmbH
Grantham, Mayo, Van Otterloo & Co. LLC           Belgacom France
The Principal Financial Group                    FLAG Telecom Ltd.
Raymond James Ltd                                Hitachi Telecom (USA), Inc.
The Bankers Bank
Bank Enteniel
                                                 OTHER SERVICES
                                                 --------------
HEALTH CARE                                      Miller Heiman, Inc.
-----------                                      Metropolitan Nashville Government and
Marriott International (Senior Living            Intrawest Corporation
Services)                                        Televerde
McKesson Corporation                             Total Information Systems (DAC Services)
NDC Health Information Services                  Metropolitan Nashville Government and
Mental Health Cooperative Inc.                   Davidson County
Kronos
</TABLE>


                                      -12-
<PAGE>

SALES AND MARKETING

We sell our  products  through  a direct  sales  force  and over 50  independent
members of the Pivotal  Partner  Program  that resell our  products.  Our direct
sales force is located in the United States, Canada, the United Kingdom, France,
Germany,  Australia,  New  Zealand,  and Japan.  Members of the Pivotal  Partner
Program are located  worldwide in North and South  America,  Europe,  the Middle
East and Asia.  The Pivotal  Partner  Program is  comprised  of  consulting  and
technology  companies,  progressive  product development  organizations,  market
leaders,  and  regional  consulting  and sales firms that meet our  criteria for
inclusion.

Our  marketing  efforts are  directed at promoting  our  products and  services,
creating market awareness and generating leads. Our marketing activities include
Internet  business  seminars,  print  and  Internet  advertising  campaigns  and
attendance  at  industry  trade show  events and trade  conferences.  We use the
Internet   extensively  to  communicate  with  potential   customers,   existing
customers,  partners and others. We also conduct  comprehensive public relations
programs  that  establish  and  maintain  relationships  with key  trade  press,
business press and industry  analysts.  We have a customer  communications  team
targeted at working  directly with our customers to obtain feedback and to track
ongoing customer success stories. This team also performs a series of surveys on
each  customer to assess the  customer's  satisfaction  with our products and to
anticipate any further needs of the customer.


STRATEGIC RELATIONSHIPS

Our  partner  strategy  within  Pivotal is focused on driving  revenue  from our
relationships  - both for  Pivotal and the  partner  organizations  that are our
valued  partners.  Our partner  strategy  includes the  deployment  of a partner
program designed to:

     (a)  better serve our customers;
     (b)  broaden our product offering; and
     (c)  extend our market reach.

Pivotal's  Partner  Program is a  comprehensive  program  to promote  and retain
professional  experts  in all  facets of the  Customer  Relationship  Management
market.  The Pivotal  Partner  Program is designed to meet the above  objectives
through  three  separate  programs  focused on Consulting  Alliances,  Solutions
Alliances,  and Market Alliances.  As a result, we are able to provide companies
around the world with a comprehensive set of advanced  technologies and services
for  leveraging  leading edge  technology  and best  practices in their  related
fields. During 2002, we launched these new programs and in the process clarified
our  overall  partner  strategy.  To that end,  we also  reduced  the  number of
partners in the Pivotal Partner Program by 50% to ensure that the  relationships
are profitable and successful for both parties. We now believe we have the right
partners for our corporate strategy.

Partner Programs

Our  Partner  Program  comprises  the  following  three  categories:  Consulting
Alliances, Solution Alliances, and Market Alliances.

Consulting Alliances. Our Consulting Alliances are highly skilled services-based
organizations  that implement  enterprise level Pivotal  products.  These system
integrators  typically  operate  in  multiple  geographic  locations,  and  have
experience in working with Global 2000 companies.  Consulting  Alliances provide
their expertise to our customers  including overall  strategy,  business process
design and analysis,  application integration and training, return on investment
analysis and vertical  market  expertise.  There are three levels of partners in
the Consulting Alliance Partner community: Peak; Premier; and Regional.

Solution  Alliances.   To  further  extend  Pivotal's  breadth  of  product  and
technology  offerings,  Pivotal has  developed the  Solutions  Alliance  Partner
Program.  Pivotal  has  established   relationships  with  industry  leaders  in
technology, intelligence,  applications and business services. Pivotal and these
partners develop,  market, sell and deliver comprehensive  Customer Relationship
Management  solutions.  There are three  types of partner  within  the  Solution
Alliance Partner  community:  Platform,  Product,  and PivotalHost.  The Product
alliance  partner  community  is further  broken down into three  categories  of
partners:  Original  Equipment  Manufacturer,  Peak and Base.  We also  offer an
Application  Service Provider solution specific to the Pivotal products provided
as a component of the PivotalHost partnership.

Market Alliances.  Market Alliances provide  additional market presence for both
the partner and Pivotal.  This program is diverse in nature and allows  numerous
types of companies to join forces with Pivotal to gain market share.  Our Market
Alliance  partnerships are focused on ways to increase brand awareness and drive
Pivotal products into new and existing  customers  through higher  visibility in
the market.  There are two levels of Market  Alliance  Partners:  Peak and Base,
which each have varying responsibilities and commitments.


                                      -13-
<PAGE>

KEY RELATIONSHIPS

MICROSOFT

Pivotal  maintains a strong product  development and business  partnership  with
Microsoft as measured by Pivotal's  business  growth on the Microsoft  platform.
Pivotal has been  recognized  by Microsoft in the past,  winning four  Microsoft
Industry  Solution  awards,  and today remains one of Microsoft's  top three SQL
license  revenue  generators,  as well as a major reseller of .Net servers.  Our
relationship spans sales, marketing and customer support, and includes:

     -    Technology  Sharing - Pivotal is a recognized leader in exploiting and
          adopting  Microsoft's .Net initiative,  and is highly involved in .Net
          advanced  product  development.  In return,  Pivotal  helps  drive the
          adoption  of  advanced  Microsoft  technologies  in  the  marketplace,
          providing credible, real-world deployments that Microsoft can leverage
          to support their marketing campaigns.

     -    Competitive  Selling  - Pivotal  leverages  support  from  Microsoft's
          specialized  competitive  sales teams and consulting  services to help
          win deals in the  marketplace.  In  return,  Pivotal  helps  Microsoft
          realize its goals by selling into companies that traditionally support
          IBM, Sun or Oracle products and services.

     -    Premier  Support for  Developers - In August 1997,  Pivotal joined the
          Premier Support for Developers pilot program and has played a key role
          in helping to evolve it.  Pivotal holds a two-year  board  position on
          Premier Support's  exclusive Customer Council to make  recommendations
          on enhancing and improving Microsoft Premier Support.

     -    International  Partnership  - Pivotal  has a worldwide  alliance  with
          Microsoft,   including   Microsoft's   offices  in  Japan,   Malaysia,
          Singapore,  Australia, Taiwan, Hong Kong, China, India, South America,
          Germany, France and the UK.

While we believe  that there will not be  significant  overlap  with the present
market for our products,  we may in future be faced with direct competition from
Microsoft,  as it has announced  its intention to launch a competing  product in
the  mid-market  for  Customer  Relationship   Management  products.  See  "Risk
Factors."

INTEL

Pivotal  and  Intel  have a global  alliance  that  spans  marketing,  sales and
technology,   and  assists  customers  in  overcoming   information   technology
challenges by  delivering  support,  platform and  communication  expertise,  in
addition to advanced technology access.  Intel supports Pivotal's  commitment to
delivering business  results/impact from Customer  Relationship  Management,  by
providing mid-sized enterprises with high-performance,  fully optimized, rapidly
deployable Customer Relationship  Management that offers exceptionally low total
cost of ownership.

     -    Advanced  Technology - Intel extends Pivotal's products with access to
          advanced  technology,  such as innovative  telephony products for call
          centers. In return,  Pivotal increases Intel revenues through sales of
          Intel server  processors,  computer  telephony and by supporting Intel
          architecture.

     -    Advanced   Architecture  -  Intel   validates   Pivotal's   technology
          architecture  and platform,  primarily  through  testing and knowledge
          transfer in the areas of extensibility,  reliability,  scalability and
          availability.  In return, Pivotal helps drive the adoption of advanced
          Intel  technologies in the  marketplace.  In fact,  Pivotal is a major
          Intel independent software vendor in the growing Customer Relationship
          Management market,  with the majority of Pivotal's over 1400 customers
          running their business on Intel architecture.

     -    Broad Technology  Reach - Customers  benefit from the wider technology
          expertise   that   Intel   can   bring  in  areas   such  as   network
          infrastructure.  In return, Pivotal helps Intel realize their goals by
          selling into  companies  that  traditionally  support Sun products and
          services.



                                      -14-
<PAGE>

CAP GEMINI ERNST & YOUNG

In May 2001, we signed a strategic  alliance  agreement  with Cap Gemini Ernst &
Young, one of the largest management and information technology consulting firms
in the world.  Cap Gemini Ernst &Young is a Pivotal  worldwide  partner that has
been  recognized  in the  industry  as both a Customer  Relationship  Management
thought  leader  and a leader  in  providing  Customer  Relationship  Management
services.  With a strong understanding of  industry-specific  best practices and
extensive breadth and depth of industry  experience,  Cap Gemini Ernst &Young is
Pivotal's global partner of choice.

While Pivotal leverages Cap Gemini Ernst &Young's global resource base and brand
recognition to extend our reach to a worldwide  audience,  Pivotal  provides Cap
Gemini Ernst &Young with further access to the underserved and growing  mid-size
enterprise  market for  Customer  Relationship  Management.  Customers  gain the
choice  of  engaging  a  reliable,  experienced  worldwide  consultant  that can
leverage Microsoft's Accelerated Development Centers to reduce delivery time and
integration risk.

As part of our strategic  alliance  agreement with Cap Gemini Ernst & Young,  we
committed  to  utilize a minimum  amount of Cap  Gemini  Ernst & Young  services
during  fiscal  2001  and  2002.  Following  our  corporate  restructuring,   we
re-focused  our business  activities so that we are no longer  utilizing the Cap
Gemini  Ernst & Young  services  in the  manner  originally  contemplated.  As a
result,  we  incurred  a  restructuring  charge  on our  fiscal  2002  financial
statements for the remaining contractual obligation.

TECHNOLOGY

Our software  architecture  provides a foundation for the development of new and
innovative  products and allows our products to be easily adaptable,  to operate
with other  applications and to address the needs of users on multiple computing
devices. This software architecture also allows our products to be used over the
Internet. We have invested in the following  technologies which serve as a basis
for our Customer Relationship Management products and services:

     -    Microsoft  Technology.  Our products are  optimized  for the Microsoft
          Windows NT, Microsoft Windows 2000 and Microsoft BackOffice platforms.
          Our focused  development  efforts have  enabled us to create  products
          that exploit the capabilities of Microsoft's  products,  including SQL
          Server,  that are  bundled and  licensed  with our  products.  We also
          created a direct link between our  products'  databases  and Microsoft
          Outlook that allows our  customers  to use the  familiar  interface of
          Microsoft  Outlook  to  update  their  calendar,   tasks  and  contact
          information.   In  addition,   our  products  use  Microsoft  Internet
          technologies to publish information across the Internet.

     -    Intelligent Internet Architecture. Our products are based on such open
          Internet standards such as eXtensible Markup Language (XML) and Simple
          Object  Access  Protocol  (SOAP),   directly   incorporating  Internet
          technologies  within  our  platform  architecture,  and  allowing  our
          customers to communicate securely using Internet protocols both within
          and beyond the enterprise. Our products are also structured to support
          multiple  network  environments  and  user  access  methods,  such  as
          wireless  devices and electronic  mail.  This allows our customers the
          flexibility to implement a product for their  specific  environment in
          an industry standard fashion,  and facilitates  integration with other
          systems and technologies.

     -    Internet  Commerce  Platform.  Pivotal  Interactive  Selling Suite, an
          electronic  sales channel for  delivering a  personalized,  one-to-one
          buying  experience,  implements an  object-oriented  database to store
          complex product and selling relationships, with a scalable middle tier
          supporting both declarative and procedural rule  definition,  rendered
          via eXtensible Markup Language (XML) as a Web commerce application. We
          believe that this is a powerful and  cost-effective  architecture  and
          data  representation  for selling  complex  products  and managing the
          rules associated with this process.

     -    Metadata  Repository.   Our  software  stores  data  in  two  separate
          databases:  the metadata  database,  (which  contains data  structure,
          forms,  lists,  business  rules and  workflow),  and the customer data
          database.  By  separating  the data  from the  metadata,  the  Pivotal
          application can be rapidly and easily customized using graphical tools
          - there is no need for source code  modifications  - to meet  changing
          organizational  needs with no  disruption to the rest of the system or
          end users. In addition,  a business can distribute custom  application
          changes throughout its organization in the normal data synchronization
          process.  We believe  these  benefits  differentiate  our product from
          those of our competitors.

     -    Pivotal SyncStream.  Our SyncStream technology captures any additions,
          modifications or deletions to our application and the shared corporate
          database and transmits only the net changes to the appropriate  users.
          This technology  eases the deployment of new  applications,  minimizes
          the connection  costs  associated  with the  synchronization  of data,
          transmits  changes  securely  and enables  mobile users to receive the
          correct data when synchronizing.


                                      -15-
<PAGE>

     -    Distributed  Database  Design.  Our  technology is designed to support
          various  databases  that reside on multiple  servers,  including  both
          Microsoft  SQL Server and Oracle 8i. Due to our  distributed  database
          design, data from the central database can be replicated to servers in
          different  locations  and on  various  mobile  remote  databases  (eg.
          laptops),  and can be  updated  by our  SyncStream.  This  allows  for
          scalability  and  configuration  flexibility  as customers can upgrade
          network  hardware and software in a modular  fashion with minimal loss
          of performance and downtime.

     -    Pivotal   Enterprise   Manager.   Our  Enterprise   Manager   provides
          centralized   configuration   management   through  a  graphical  user
          interface.  The Enterprise  Manager enables system  administrators  to
          audit and apply configuration  changes to the application,  manage and
          test customization changes off-line and replicate custom data sets for
          mobile users.  From a single  interface,  customers can  distribute an
          updated system online across the entire  enterprise  without  downtime
          for users.

RESEARCH AND DEVELOPMENT

Our research and  development  department is divided into six functional  areas:
Advanced Technology;  Software  Development;  Documentation;  Quality Assurance;
Program Management;  and Product Management. As of June 30, 2002, there were 121
employees in our research and  development  department.  Where  appropriate,  we
contract with third-party  developers to expand the capacity of our research and
development department.

For the years ended June 30, 2002, 2001 and 2000, we spent  approximately  $17.0
million,  $18.8  million  and  $8.9  million,   respectively,  on  research  and
development.

Our  software  development  approach  consists of a  methodology  that  provides
guidelines for planning,  controlling and  implementing  projects.  Our advanced
technology team focuses on tracking and evaluating new technologies  with a view
to incorporating the best technologies  available into our products. Our product
management  team  gathers  and  documents  market  requirements  and trends in a
requirements  analysis.  After the  requirements  analysis has been reviewed for
feasibility and the proposed project  approved by management,  a product team is
established  to  implement  the  project.  Our  program  management  team  takes
responsibility  for documenting a detailed product  specification.  The software
development  team  may  build  prototypes  to  assess  the  risks  and  business
requirements  of a project and then  concentrates  on research  and  development
activities. Through the later stages of development we perform final testing and
quality assurance.  Our program and product management teams are involved at all
stages of development so that market requirements continue to be addressed.  The
program and product  management  teams also assist with the  introduction of the
product by training our direct sales force and  internal  professional  services
staff.

We place  particular  emphasis on quality  assurance and testing  throughout the
development  process.  We use version control  software as well as standard test
tools,  scripts  and agents  developed  by us in order to  automate  our testing
processes and increase the quality of code we develop.

COMPETITION

The market for our  software is  intensely  competitive  and  rapidly  changing.
Competition for any given customer may involve competition as to price, features
and other factors  specific to the needs of that customer.  We face  competition
from companies in the Customer  Relationship  Management  software market and in
the overall enterprise  business  application  market.  Some competitors include
Siebel  Systems  Inc.,  Oracle   Corporation,   SAP  AG,  Onyx  Corporation  and
PeopleSoft, Inc.

Other  competitors  may enter the market by developing or acquiring new products
and applications.

Microsoft  has entered the Customer  Relationship  Management  market with their
Microsoft Customer Relationship  Management product, which is designed for small
and mid-sized businesses.  Microsoft has indicated that it will directly compete
in the Customer  Relationship  Management market for mid-sized  enterprises.  If
Microsoft  becomes  our  competitor,  it may  harm or end our  co-marketing  and
co-selling  initiatives  with Microsoft.  Such  competition with Microsoft could
likely have a material adverse affect on our business,  market share,  financial
condition and results of operations.

In addition,  as we develop new products,  particularly  applications focused on
electronic  commerce or on specific  industry  segments,  we may begin competing
with companies with whom we have not  previously  competed.  It is also possible
that new  competitors  will enter the market or that our  competitors  will form
alliances that may enable them to rapidly  increase their market share.  Some of
our actual and potential  competitors are larger,  better established  companies
that have  greater  technical,  financial  and  marketing  resources.  Increased
competition may result in price  reductions,  lower gross margins or loss of our
market  share,  any of which could  materially  adversely  affect our  business,
financial condition and operating results.


                                      -16-
<PAGE>

INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS

We  rely on a  combination  of  copyright,  trade  secret  and  trademark  laws,
confidentiality procedures, contractual provisions and other similar measures to
protect our proprietary information and technology. We do not currently hold any
patents  nor  do we  have  any  patent  applications  pending.  There  can be no
assurance that any copyrights or trademarks held by us will not be challenged or
determined to be invalid.

As part of our  confidentiality  procedures,  we have a policy of entering  into
non-disclosure and confidentiality  agreements with our employees,  consultants,
corporate alliance members,  customers and prospective customers.  We also enter
into license agreements with respect to our technology,  documentation and other
proprietary  information.   These  licenses  are  perpetual  and  are  generally
transferable  subject to  obtaining  our prior  consent.  Despite the efforts to
protect  our  proprietary  rights,  unauthorized  parties may attempt to copy or
otherwise  obtain  the  use of our  products  or  technology  that  we  consider
proprietary  and  third  parties  may  attempt  to  develop  similar  technology
independently. We pursue registration and protection of our trademarks primarily
in the United States,  although we do seek protection  elsewhere in selected key
markets. Effective protection of intellectual property rights may be unavailable
or limited in some  countries.  The laws of some  countries  do not  protect our
proprietary rights to the same extent as in the United States and Canada.  There
can be no assurance that protection of our  proprietary  rights will be adequate
or that our competitors will not independently develop similar technology.

We anticipate that companies that develop software  applications will be subject
to infringement claims as the number of products and competitors in our industry
segment grows and the  functionality of products in different  industry segments
overlaps.  As a result,  we may become  involved in these  claims.  Any of these
claims,  with or without merit,  could result in costly  litigation,  divert our
management's  time,  attention  and  resources,  delay our product  shipments or
require us to enter into  royalty or license  agreements.  If a claim of product
infringement against us is successful,  our business and operating results could
be seriously harmed.

EMPLOYEES

As of June  30,  2002 we had a total  of 521  employees,  excluding  independent
contractors and temporary employees.  Of this number, 121 people were engaged in
research and  development,  165 people were engaged in sales and marketing,  149
people were  engaged in  professional  services  and 86 people  were  engaged in
general  administration.  No employees  are known by us to be  represented  by a
collective  bargaining  agreement and we have never experienced a strike or work
stoppage.  We consider our employee relations to be good. Our ability to achieve
our financial and operational  objectives depends in large part upon our ability
to attract, retain and motivate highly qualified sales, technical and managerial
personnel.  There can be no assurance that we will be able to attract and retain
such employees in the future.

IMPORTANT FACTORS THAT MAY AFFECT OUR BUSINESS, OUR RESULTS OF OPERATIONS AND
OUR SHARE PRICE.

Holders of our common shares are subject to the risks and uncertainties inherent
in our business.  You should  consider the following  factors,  as well as other
information  set forth in this report,  in connection with any investment in our
common shares. If any of the risks described below occurs, our business, results
of  operations  and financial  condition  could be adversely  affected.  In such
cases,  the price of our common shares could decline,  and you could lose all or
part of your investment.

Although  we believe  that the  expectations  reflected  in our  forward-looking
statements  are  reasonable,  we  cannot  guarantee  future  results,  levels of
activity,  performance or achievements or other future events. Moreover, neither
we nor anyone else assumes  responsibility  for the accuracy or  completeness of
forward-looking  statements.  You should consider our forward-looking statements
in light of the following risk factors and other  information in this report. If
any of the risks described below occurs, our business, results of operations and
financial  condition  could differ from those  projected in our  forward-looking
statements. We are under no duty to update any of our forward-looking statements
after  the  date  of this  report.  You  should  not  place  undue  reliance  on
forward-looking statements.

FACTORS RELATING TO OUR BUSINESS AND THE MARKET FOR CUSTOMER RELATIONSHIP
MANAGEMENT AND ELECTRONIC BUSINESS PRODUCTS MAKE OUR TOTAL REVENUE AND FUTURE
OPERATING RESULTS UNCERTAIN AND MAY CAUSE THEM TO FLUCTUATE FROM PERIOD TO
PERIOD.

Our  operating  results  have  varied in the past,  and we expect  that they may
continue to fluctuate in the future. In addition,  our operating results may not
follow any past  trends.  Some of the factors  that could  affect the amount and
timing of our revenues from software licenses and related expenses and cause our
operating results to fluctuate include:


                                      -17-
<PAGE>

     o    general economic  conditions,  which may affect our customers' capital
          investment levels in management information systems;

     o    changes in the economy and foreign currency exchange rates;

     o    market acceptance of our products;

     o    the length and variability of the sales cycle for our products,  which
          typically ranges between two and eight months from our initial contact
          with a potential customer to the signing of a license agreement;

     o    the size and  timing of  customer  orders,  which can be  affected  by
          customer order deferrals in anticipation of new product introductions,
          product enhancements, and customer budgeting and purchasing cycles;

     o    our  ability  to  successfully  expand our sales  force and  marketing
          programs;

     o    increases in the cost of software and professional services;

     o    our ability to successfully expand our international operations;

     o    the  introduction  or enhancement of our products or our  competitors'
          products;

     o    changes in our or our competitors' pricing policies;

     o    activities of and acquisitions by competitors;

     o    our ability to develop,  introduce and market new products on a timely
          basis and control our costs; and

     o    customer  satisfaction and our reputation relating to our products and
          services.

One or more of the  foregoing  factors  may cause our  operating  expenses to be
disproportionately high during any given period or may cause our net revenue and
operating results to fluctuate significantly.  Based upon the preceding factors,
we may  experience a shortfall in revenue or earnings or otherwise  fail to meet
public market  expectations,  which could  materially  and adversely  affect our
business, financial condition, results of operations and the market price of our
common shares.

OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE DUE TO SEASONAL TRENDS AND
VARIATIONS IN THE FISCAL OR QUARTERLY CYCLES OF OUR CUSTOMERS.

Our total revenue and operating results may vary  significantly  from quarter to
quarter.  The main factors that may affect  these  fluctuations  are: o seasonal
variations in operating results;

     o    variations in the fiscal or quarterly cycles of our customers;

     o    the discretionary nature of our customers' purchase and budget cycles;

     o    the size and complexity of our license transactions;

     o    the potential delays in recognizing revenue from license transactions;
          and

     o    the timing of new product releases.

We have  experienced,  and expect to continue to  experience,  seasonality  with
respect to product license revenues. Except for the year ended June 30, 2001, we
have historically  recognized more license revenues in the fourth quarter of our
fiscal  year and  recognized  less  license  revenues  in the  subsequent  first
quarter.  We believe  that  these  fluctuations  are caused in part by  customer
buying  patterns  and the  efforts of our direct  sales  force to meet or exceed
fiscal  year-end  quotas.  In addition,  our sales in Europe are generally lower



                                      -18-
<PAGE>

during the  summer  months  than  during  other  periods.  We expect  that these
seasonal  trends are likely to  continue  in the  future.  If  revenues  for one
quarter are lower than the  revenues  for the prior  quarter,  it may be hard to
determine  whether the reason for the  reduction in revenues  involves  seasonal
trends or other factors adversely affecting our business.

Our  product  revenues  are not  predictable  with  any  significant  degree  of
certainty and future product  revenues may differ from historical  patterns.  If
customers  cancel or delay orders,  it can have a material adverse impact on our
revenues and results of operations from quarter to quarter.  Because our results
of operations may fluctuate from quarter to quarter,  you should not assume that
you could predict  results of  operations in future  periods based on results of
operations in past periods.

Even though our revenues are difficult to predict, we base our expense levels in
part on future revenue projections. Many of our expenses are fixed, and we
cannot quickly reduce spending if revenues are lower than expected. This could
result in significantly lower income or greater loss than we anticipate for any
given period. We will react accordingly to minimize any impact.

OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO PREDICT HOW OUR BUSINESS
WILL DEVELOP AND FUTURE OPERATING RESULTS.

We commenced operations in January 1991. We initially focused on the development
of  application  software for pen computers.  In September  1994, we changed our
focus to research  and  development  of  customer  relationship  management  and
electronic business products.

We  have a  limited  operating  history  and we  face  many  of  the  risks  and
uncertainties  encountered by early-stage companies in rapidly evolving markets.
These risks and uncertainties  include,  but are not limited to:

     o    no history of  profitable  operations  except for the  quarters  ended
          March 30, 1998 and June 30, 1998;

     o    uncertain market acceptance of our products;

     o    our reliance on a limited number of products;

     o    the risks that competition,  technological change or evolving customer
          preferences could adversely affect sales of our products;

     o    our  reliance  on third  parties to market,  install,  and support our
          products;

     o    our dependence on a limited number of key personnel;

     o    our  dependence  on the  adoption  and success of the  Microsoft  .NET
          platform;

     o    the risk that our management will not be able to effectively  react to
          and manage the changes to Pivotal  resulting from the rapidly evolving
          market;

     o    the  risk  that  our  management  will  not be  able  to  identify  or
          effectively manage acquisitions we have undertaken or may undertake in
          the future; and

     o    a general  economic  downturn  and  stock  market  declines  affecting
          technology companies.

The  new  and  evolving  nature  of the  customer  relationship  management  and
electronic business market increases these risks and uncertainties.  Our limited
operating  history  makes it difficult to predict how our business  will develop
and our future operating results.

WE HAVE A HISTORY OF LOSSES, WE MAY INCUR LOSSES IN THE FUTURE AND OUR LOSSES
MAY INCREASE IF PROJECTED REVENUES ARE NOT ACHIEVED TO SUPPORT THE LEVEL OF
OPERATING EXPENSES.

We have incurred net losses in each fiscal year since inception,  except for the
year ended June 30, 1998, in which we had net income of approximately $4,000. As
at June 30, 2002, we had an accumulated  deficit of approximately  $144 million.
We have  decreased  our  operating  expenses  in recent  periods  and  initiated
restructuring  plans  during the  twelve  months  ended  June 30,  2002 which we
anticipate will result in a quarterly  operating cost structure of approximately
$20.5  million for the quarter  ended  September  30, 2002.  We will continue to
examine the level of operating expenses based on projected revenues. Any planned
increases in operating


                                      -19-
<PAGE>

expenses may result in larger losses in future periods if projected revenues are
not  achieved.  As a result,  we will  need to  generate  significantly  greater
revenues than we have to date to achieve and maintain  profitability.  We cannot
be certain that our revenues will increase.  Our business  strategies may not be
successful and we may not be profitable in any future period.

WE HAVE  EXPERIENCED  RAPID GROWTH WHICH HAS PLACED A STRAIN ON OUR RESOURCES IN
THE PAST AND HAVE RECENTLY IMPLEMENTED  RESTRUCTURING  INITIATIVES TO REDUCE OUR
WORKFORCE,  FACILITIES AND BUSINESS FUNCTIONS. ANY FAILURE TO EFFECTIVELY MANAGE
THE RAPID CHANGE IN SIZE OF OUR COMPANY COULD CAUSE OUR BUSINESS TO SUFFER.

In the past,  we expanded our  operations  rapidly.  The number of our employees
increased  from 526 on June 30,  2000 to 714 on June 30,  2001.  This  expansion
placed  a  significant  strain  on our  managerial,  operational  and  financial
resources  as  we  integrated  and  managed  new  employees,   more   locations,
acquisitions,  more customers,  suppliers and other business  relationships.  In
July 2001 and October 2001, we reduced our  workforce to  approximately  675 and
525 employees,  respectively.  During the year ended June 30, 2002, we initiated
corporate  restructuring  activities,  which  included a workforce  reduction of
employees,  representing  approximately  26% of our total  workforce  worldwide,
consolidation  of  excess  facilities  and  restructuring  of  certain  business
functions.  There have been and may continue to be substantial  costs associated
with the workforce  reduction  related to severance  and other  employee-related
costs, as well as material charges for reduction of excess  facilities,  and our
restructuring  plan may  yield  unanticipated  consequences,  such as  attrition
beyond our planned reduction in workforce.  This workforce  reduction has placed
an increased burden on our  administrative,  operational and financial resources
and has  resulted  in  increased  responsibilities  for  each of our  management
personnel.  As a result, our ability to respond to unexpected  challenges may be
impaired  and we may be  unable  to  take  advantage  of new  opportunities.  In
addition, many of the employees who were terminated possessed specific knowledge
or expertise,  and that  knowledge or expertise may prove to have been important
to  our  operations.   In  that  case,  their  absence  may  create  significant
difficulties. Further, the reduction in workforce may reduce employee morale and
may create concern among potential and existing  employees about job security at
Pivotal,  which may lead to difficulty  in hiring and increased  turnover in our
current  workforce,   and  divert  management's  attention.  In  addition,  this
headcount reduction may subject us to the risk of litigation, which could result
in substantial costs to Pivotal and could divert management's time and attention
away from business  operations.  Any failure by us to properly manage this rapid
change in workforce,  facilities and business functions could impair our ability
to   efficiently   manage  our  business  to  maintain  and  develop   important
relationships  with  members of the  Pivotal  Partner  Program  and other  third
parties and to attract and  service  customers.  It could also cause us to incur
higher  operating  costs and delays in the  execution of our business plan or in
the reporting or tracking of our financial results.

OUR FUTURE  REVENUE  GROWTH  COULD BE IMPAIRED  IF WE ARE UNABLE TO  EFFECTIVELY
STAFF AND MANAGE OUR DIRECT SALES AND SUPPORT INFRASTRUCTURE.

Our  future  revenue  growth  will  depend  in  large  part  on our  ability  to
successfully  manage our direct sales force,  sales  processes and sales support
infrastructure  and  our  customer  support  capability.  We may  not be able to
recruit and train  experienced  direct sales,  consulting  and customer  support
personnel.  If we are  unable to hire and retain  highly  skilled  direct  sales
personnel  we may not be able to  increase  our  license  revenue  to the extent
necessary  to achieve  profitability.  If we are unable to hire  highly  trained
consulting  and customer  support  personnel  we may be unable to meet  customer
demands.

ECONOMIC  CONDITIONS  COULD  ADVERSELY  AFFECT OUR REVENUE GROWTH AND ABILITY TO
FORECAST REVENUE

Our revenue growth and potential for profitability  depend on the overall demand
for customer  relationship  management software and services.  Because our sales
are primarily to corporate  customers,  we are also affected by general economic
and business  conditions.  A softening of demand for computer software caused by
the weakened economy,  both domestic and  international,  has affected our sales
and may  result in  decreased  revenues  and  growth  rates.  As a result of the
economic  downturn,  we have also  experienced  and may  continue to  experience
difficulties  in  collecting  outstanding  receivables  from our  customers.  In
addition,  the  terrorist  attacks on the United  States in 2001,  and the armed
conflict that has followed,  have added or exacerbated  economic,  political and
other uncertainties, which could adversely affect our sales and thus our revenue
growth.

Our sales force  monitors  the status of  proposals,  such as the date when they
estimate that a transaction  will close and the potential  dollar amount of such
sale.  We  aggregate  these  estimates  regularly  in order to  generate a sales
forecast and then evaluate our forecast  against actual results at various times
to look for  trends  in our  business.  While  this  analysis  provides  us with
information  about our  potential  customers  and the  associated  revenues  for
budgeting and planning purposes,  these estimates may not consistently correlate
to  revenues  in a  particular  quarter  or over a longer  period  of  time.  In
particular,  as a result of the economic  slowdown,  we believe that a


                                      -20-
<PAGE>

number of our  potential  customers  may delay or cancel their  purchases of our
software,  consulting  services  or  customer  support  services or may elect to
develop their own customer  relationship  management product. A variation in the
conversion of the sales  proposals into  contracts  could  adversely  affect our
business and operating results.  In addition,  because a substantial  portion of
our sales are  completed at the end of the quarter,  and often in the last weeks
or days of a quarter,  we may be unable to adjust our cost structure in response
to a variation in the  conversion  of the sales  proposals  into  contracts in a
timely manner, which could adversely affect our business and operating results.

WE DEPEND UPON  MICROSOFT  AND THE  CONTINUED  ADOPTION AND  PERFORMANCE  OF THE
MICROSOFT .NET PLATFORM.

We have  designed  our  products  to operate  on the  Microsoft  .NET  platform,
including  Windows .NET and .NET  Enterprise  Servers.  Microsoft  .NET is a new
platform  initiative  of  Microsoft  announced  in  June  2000.  We  have  spent
considerable  resources developing and testing the compatibility of our products
for Microsoft .NET. As a result,  with the exception of our Oracle  product,  we
market our products  exclusively to customers who have developed their computing
systems  around this  platform.  However,  the  performance of our products with
Windows  .NET and the .NET  Enterprise  Servers  has limited  experience  in the
marketplace

Our  future  financial  performance  will  depend on the  continued  growth  and
successful  adoption  of  Microsoft  .NET  including  Windows  .NET and the .NET
Enterprise  Servers.   Microsoft  .NET  faces  competition,   particularly  from
computing  platforms  such as Unix and the Java 2 Platform,  Enterprise  Edition
(J2EE),  and databases from  companies  such as Oracle.  Acceptance of Microsoft
..NET may not  continue  to  increase  in the  future.  The market  for  software
applications  that run on these  platforms  has in the past  been  significantly
affected by the timing of new product  releases,  competitive  operating systems
and enhancements to competing computing  platforms.  If the number of businesses
that adopt  Microsoft  Windows  .NET fails to grow or grows more  slowly than we
currently  expect,  or if  Microsoft  delays  the  release  of new  or  enhanced
products, our revenues from the Pivotal CRM Suite could be adversely affected.

The  performance  of our  products  depends,  to some extent,  on the  technical
capabilities of the Microsoft .NET platform.  If this platform does not meet the
technical  demands  of our  products,  the  performance  or  scalability  of our
products  could be limited and, as a result,  our revenues  from the Pivotal CRM
Suite could be adversely affected.

In 2001, we launched a global  business  development  initiative  with Microsoft
aimed at leading the emerging  customer  relationship  management and electronic
business  market.  The success of this  initiative will depend on the ability of
Pivotal and  Microsoft to jointly  market and sell to Global 2000  companies the
Pivotal CRM Suite  combined with  Microsoft .NET  Enterprise  Servers.  However,
Microsoft's   intention  to  deliver  a  product  called  Microsoft(R)  Customer
Relationship Management that may directly compete with our products would likely
adversely affect our global business  initiative with Microsoft and might result
in a termination of such relationship.

In addition,  Microsoft  has been faced with  significant  legal  issues.  Broad
antitrust actions initiated by federal and state regulatory authorities resulted
in a verdict  against  Microsoft in the U.S.  District Court for the District of
Columbia.  The U.S. District Court adopted the government's  proposed remedy and
held that  Microsoft  should be divided into two companies.  Microsoft  appealed
this verdict to the U.S. Court of Appeals for the District of Columbia. The U.S.
Court of Appeals  affirmed  the U.S.  District  Court's  findings  of  antitrust
violations,  but overturned the ruling that Microsoft should be divided into two
companies.  The U.S. Court of Appeals also removed the judge presiding over this
matter in the U.S.  District  Court and remanded to the U.S.  District Court the
determination as to what remedies should be pursued against Microsoft. Microsoft
appealed  this  finding of a violation  of  antitrust  laws to the U.S.  Supreme
Court, but this appeal was denied.

In November 2001, the Justice Department and Microsoft entered into a settlement
agreement that would avoid  breaking-up  Microsoft as a remedy to the case. Only
nine of the 18 states  involved  in the  antitrust  actions  against  Microsoft,
however,  agreed to be a party to such a settlement.  Before the  settlement can
become  effective,  the U.S.  District Court must permit a public comment period
and,  thereafter,  the U.S.  District  Court must  certify  that the  settlement
between  the parties  serves the public  interest.  The  deadline  for  comments
regarding the settlement ended on January 28, 2002, and the U.S.  District Court
ordered the Justice  Department to summarize the comments for the U.S.  District
Court and publish them all in the Federal  Register  within 30 days. The Justice
Department  released  a summary of the  comments  on  February  27,  2002.  Upon
reviewing the comments,  the Justice  Department and Microsoft agreed to certain
modifications  to  clarify  aspects of the  proposed  settlement.  The  proposed
settlement  contains  certain  prohibitions  on the  actions  the U.S.  Court of
Appeals determined were acts of monopoly maintenance,  precludes other practices
that  Microsoft   might  engage  to  impede  threats  and  imposes   affirmative
obligations on Microsoft, which the Justice Department believes create favorable
conditions  under which  competing  products can be developed and deployed.  The
proposed  settlement  was submitted to the U.S.  District  Court for approval on
February 27, 2002, and a decision has not yet been rendered by the U.S. District
Court.


                                      -21-
<PAGE>

European Union  regulators  are currently  investigating  whether  Microsoft has
violated European  antitrust laws. Any outcome to these actions that weakens the
competitive  position of Microsoft  .NET  products  could  adversely  affect the
market for our products.

THE MARKET FOR OUR PRODUCTS IS HIGHLY COMPETITIVE AND COULD INCLUDE  COMPETITION
FROM MICROSOFT.

The market for our software is intensely  competitive and rapidly changing.  The
past year has been one of vendor  consolidation.  Today, the direct  competitors
are fewer in number as companies  are looking for business  technology  products
that deliver rapid results.  We face  competition from companies in the Customer
Relationship  Management  software market and in the overall enterprise business
application  market.  Some of our actual and potential  competitors  are larger,
better-established companies and have greater technical, financial and marketing
resources.  Increased  competition may result in price  reductions,  lower gross
margins or loss of our market  share,  any of which could  materially  adversely
affect our business, financial condition and operating results. Some competitors
include Siebel Systems Inc.,  Oracle  Corporation,  SAP AG, Onyx Corporation and
PeopleSoft, Inc.

In addition,  on February 26, 2002,  Microsoft  announced  that later in 2002 it
intends  to  deliver  a  product  called  Microsoft(R)   Customer   Relationship
Management  (CRM)  which,   according  to  Microsoft  at  that  time,  would  be
specifically   designed  for  the  needs  of  small  and  medium-sized  business
customers.  We  believed at that time that the target  market for the  Microsoft
Customer  Relationship  Management product was different from our target market.
However,  on July 11, 2002  Microsoft  further  explained  its overall  Customer
Relationship  Management  business  strategy  and  indicated  that its  Customer
Relationship  Management  product could eventually be targeted to the mid-market
of the Customer  Relationship  Management software market;  therefore,  while we
believe that there will not be  significant  overlap with the present market for
our  products,  our  products  could  be  faced  with  direct  competition  from
Microsoft,  which  could  have a material  adverse  effect on our  revenues  and
results of operations.

In addition,  as we develop new products,  particularly  applications focused on
electronic  commerce  or  specific  industries,  we  may  begin  competing  with
companies  with whom we have not previously  competed.  It is also possible that
new  competitors  will  enter  the  market  or that our  competitors  will  form
alliances that may enable them to rapidly increase their market share.

THE MARKET FOR PIVOTAL EPOWER LIFECYCLE ENGINE - ORACLE EDITION IS UNKNOWN.

On August 14,  2001,  we announced  the  availability  of and began  selling our
Pivotal ePower  Lifecycle Engine - Oracle Edition whereby our product can now be
implemented  using  Oracle-based  platforms  and  technologies.  We do not  know
whether it will result in any material revenue for us.

THE SUCCESS OF OUR STRATEGIC ALLIANCE WITH CAP GEMINI ERNST & YOUNG IS UNKNOWN.

We entered into a strategic  alliance agreement with Cap Gemini Ernst & Young in
May 2001  whereby we jointly  market and sell the Pivotal CRM Suite.  As part of
our strategic  alliance agreement with Cap Gemini Ernst & Young, we committed to
utilize a minimum amount of Cap Gemini Ernst & Young services during fiscal 2001
and 2002.  Following our  corporate  restructuring,  we re-focused  our business
activities  so that we are no  longer  utilizing  the Cap  Gemini  Ernst & Young
services  in the manner  originally  contemplated.  As a result,  we  incurred a
restructuring  charge on our fiscal 2002 financial  statements for the remaining
contractual  obligation.  We do not know if this will  prove to be a  successful
relationship  in the future or if it will  result in any  material  revenue  for
Pivotal.

THE MARKET FOR OUR PRODUCTS IS NEW AND HIGHLY UNCERTAIN AND OUR PLAN TO FOCUS ON
INTERNET-BASED  APPLICATIONS AND INTEGRATE  ELECTRONIC COMMERCE FEATURES ADDS TO
THIS UNCERTAINTY.

The market for customer relationship management and electronic business products
is still emerging and continued  growth demand for and acceptance of the Pivotal
CRM Suite  remains  uncertain.  Even if the  market  for  customer  relationship
management  electronic  business  products  grows,  businesses  may purchase our
competitors'  products  or  develop  their  own.  We  believe  that  many of our
potential customers are not fully aware of the benefits of the Pivotal CRM Suite
and, as a result,  these  products and  services  may never  achieve full market
acceptance.

The   development  of  our   Internet-based   Pivotal  CRM  Suite  for  customer
relationship  management  and  electronic  business  and our  plan to  integrate
additional  features presents  additional  challenges and uncertainties.  We are
uncertain how businesses will use the Internet as a means of  communication  and
commerce  and  whether a  significant  market will  develop  for  Internet-based
customer relationship


                                      -22-
<PAGE>

management and electronic  business  products such as those developed by us. The
use of the Internet is evolving  rapidly and many  companies are  developing new
products  and  services  that use the  Internet.  We do not know  what  forms of
products and services may emerge as alternatives to our existing  products or to
any  future  Internet-based  customer  relationship  management  and  electronic
business  products we may introduce.  We have spent, and will continue to spend,
considerable  resources  educating  potential  customers  about our products and
Customer  Relationship  Management and electronic  business  software  products.
However, even with these educational efforts,  market acceptance of our products
may not  increase.  If the  markets  for our  products  do not grow or grow more
slowly than we  currently  anticipate,  our  revenues  may not grow and may even
decline.

OUR  SALES  CYCLE  IS  UNPREDICTABLE  AND  THE  AVERAGE  SIZE  OF OUR  LICENSING
TRANSACTIONS  VARIES  WIDELY  FROM  QUARTER  TO  QUARTER,  WHICH  COULD HARM OUR
OPERATING RESULTS.

We believe  that an  enterprise's  decision to purchase a customer  relationship
management  and  electronic  business  product  is  discretionary,   involves  a
significant  commitment of its resources and is influenced by its budget cycles.
To  successfully  sell licenses for our products,  we typically must educate our
potential  customers  regarding  the use and  benefits of customer  relationship
management  and  electronic  business  products in general  and our  products in
particular.  This education process can require  significant time and resources.
Consequently,  the period between  initial  contact and the purchase of licenses
for our products is often long and subject to delays associated with the lengthy
budgeting,   approval  and  competitive   evaluation  processes  that  typically
accompany significant capital expenditures.

This sales cycle is variable  and subject to  significant  uncertainty.  We have
restructured  our sales process to allow some potential  customers an evaluation
period  during which they may evaluate our software  products at no charge prior
to any  decision to  purchase.  We believe  that the new  evaluation  period may
further  lengthen  our  sales  cycle.  We  frequently  must  invest  substantial
resources to develop a  relationship  with a potential  customer and educate its
personnel  about our products and  services  with no guarantee  that our efforts
will be rewarded with a sale.

We may  encounter  reduction  in  our  customers'  project  sizes,  deferral  of
purchasing  and lack of an urgency to purchase and the overall  unpredictability
of customer  decision-making.  In addition, we may continue to see reductions in
the size of customer  orders in the final stages of  negotiations as a result of
reduction  in the  customer's  project  size.  The  increase  in sales cycle and
varying transaction sizes could harm our operating results.

OUR SUCCESS WILL DEPEND UPON THE SUCCESS OF OUR PRODUCTS.

We  anticipate  that a majority of our  revenues  and growth in the  foreseeable
future will come from  license and  service  related to sales of our  integrated
product suites and standalone  products,  primarily  consisting of Pivotal Sales
Suite,  Pivotal  Marketing  Suite,  Pivotal Service Suite,  Pivotal  Interactive
Selling  Suite,  and  Pivotal  Partner  Management  Suite,  as well as  industry
specific  products.  Accordingly,  failure of our integrated  product suites and
products to gain  increased  market  acceptance and compete  successfully  would
adversely  affect our business,  results of operations and financial  condition.
Our future  financial  performance  will depend on our ability to succeed in the
continued sale of our integrated product suites,  products and related services,
as well as the development of new versions and enhancements of these products.

THE SUCCESS OF OUR PRODUCTS  WILL DEPEND UPON THE CONTINUED USE AND EXPANSION OF
THE INTERNET.

Increased sales of our products and any future  Internet-based  applications and
electronic commerce features we integrate with our current products, will depend
upon the  expansion  of the  Internet as a leading  platform  for  commerce  and
communication.  If the  Internet  does  not  continue  to  become  a  widespread
communications  medium and commercial  marketplace,  the demand for our products
could be  significantly  reduced and our products and any future  Internet-based
and  electronic  commerce  features  may  not be  commercially  successful.  The
Internet  infrastructure  may not be able to support the demands placed on it by
continued  growth.  The Internet  could lose its  viability due to delays in the
development  or adoption of new  equipment,  standards  and  protocols to handle
increased levels of Internet activity, security, reliability, cost, ease of use,
accessibility and quality of service.

Other  concerns  that could  inhibit the growth of the  Internet  and its use by
business as a medium for communication and commerce include:

     o    concerns about security of transactions conducted over the Internet;

     o    concerns  about  privacy  and  the use of data  collected  and  stored
          recording interactions over the Internet;


                                      -23-
<PAGE>

     o    the possibility that federal, state, local or foreign governments will
          adopt laws or regulations  limiting the use of the Internet or the use
          of information  collected from communications or transactions over the
          Internet; and

     o    the possibility that governments will seek to tax Internet commerce.


WE  DEPEND  ON  THIRD-PARTY   WIRELESS  SERVICE  PROVIDERS  FOR  THE  SUCCESSFUL
IMPLEMENTATION OF OUR PIVOTAL WIRELESS PRODUCT.

Our Pivotal Wireless product provides a wireless  platform that allows our other
products  to be  accessed  wirelessly.  We depend on  third-party  providers  of
wireless services for the successful implementation of Pivotal Wireless. Because
Pivotal Wireless relies on wireless  services  developed and maintained by third
parties,  we depend on these  third  parties'  abilities  to deliver and support
reliable wireless services.  The wireless industry is new and rapidly developing
and involves many risks, including:

     o    extensive government regulation in licensing, construction, operation,
          sale and interconnection  arrangements of wireless  telecommunications
          systems  which may prevent  third-party  providers  from  successfully
          expanding their wireless services;

     o    rapid  expansion of the  wireless  services  infrastructure  which may
          result in flaws in the infrastructure;

     o    concerns over the radio frequency emissions or other health and safety
          risks that may discourage use of wireless services; and

     o    possible  disruptions  in  service  related  to the  consolidation  or
          removal of participants in the wireless market.

WE RELY ON OUR PIVOTAL PARTNER PROGRAM NETWORK OF INDEPENDENT COMPANIES TO SELL,
INSTALL AND SERVICE OUR  PRODUCTS  AND TO PROVIDE  SPECIALIZED  SOFTWARE FOR USE
WITH THEM AND OUR PIVOTALHOST PROGRAM RELIES ON THIRD-PARTY  APPLICATION SERVICE
PROVIDERS.

We do not have the  internal  implementation  and  customization  capability  to
support our current level of sales of licenses. Accordingly, we have established
and rely on our  international  network  of  independent  companies  we call the
Pivotal Partner Program.  Members of the Pivotal Partner Program market and sell
our products,  provide  implementation,  customization  and education  services,
provide  technical  support and maintenance on a continuing basis and provide us
with  software  applications  that we can bundle  with our  products  to address
specific  industry and customer  requirements.  Approximately 19% and 20% of our
license revenues for the years ended June 30, 2002 and 2001,  respectively  were
from sales made through  third-party  resellers.  The majority of our  customers
retain  members of the  Pivotal  Partner  Program to install and  customize  our
products.   If  we  fail  to  maintain  our  existing  Pivotal  Partner  Program
relationships,  or to establish new relationships, or if existing or new members
of the Pivotal Partner Program do not perform to our  expectations,  our ability
to sell, install and service our products may suffer.

There is an industry  trend toward  consolidation  of systems  integrators  that
implement,  customize  and  maintain  software  products.  Some  of the  systems
integrators  in  the  Pivotal   Partner  Program  have  engaged  in  discussions
concerning business  consolidations.  We are uncertain as to the effect that any
consolidation may have on our relationships  with members of the Pivotal Partner
Program.

The  success  of our  PivotalHost  program  will  depend on the  commitment  and
performance  of  third-party   application  service  providers  to  successfully
implement and market services that incorporate our products.

THE LOSS OF KEY  PERSONNEL  OR OUR  FAILURE  TO ATTRACT  AND  RETAIN  ADDITIONAL
PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS.

Our success depends largely upon the continued service of our executive officers
and other key management,  sales and marketing and technical personnel. The loss
of the services of one or more of our executive  officers or other key employees
could have a material adverse effect on our business,  results of operations and
financial condition. In particular, we rely on Bo Manning, our President,  Chief
Executive  Officer  and  director  and Divesh  Sisodraker,  our Chief  Financial
Officer. We do not maintain key person insurance on the lives of Messrs. Manning
or Sisodraker.

Our future  success  also  depends on our ability to attract  and retain  highly
qualified  personnel.  The competition  for qualified  personnel in the computer
software  and  Internet  markets is intense,  and we may be unable to attract or
retain highly qualified  personnel.  Due to


                                      -24-
<PAGE>

competition for qualified employees,  it may be necessary for us to increase the
level of compensation paid to existing and new employees such that our operating
expenses  could be  materially  increased.  The price of our  common  shares has
declined  significantly in the past year. Many of our key employees hold options
to purchase  common shares with exercise prices  significantly  greater than the
current market price of the common shares. Accordingly, our current share option
program may be of limited value in retaining and motivating employees.

WE FACE RISKS FROM THE EXPANSION OF OUR INTERNATIONAL OPERATIONS.

We have permanent offices in the United States, Canada, Ireland, England, Japan,
Australia,  New Zealand,  Germany and France.  We are  constantly  reviewing our
international sales and operations to determine if offices are required in these
and other countries.  International  operations are subject to numerous inherent
potential risks, including:

     o    unexpected changes in regulatory requirements;

     o    export restrictions, tariffs and other trade barriers;

     o    changes in local tax rates or rulings by local tax authorities;

     o    challenges  in staffing and  managing  foreign  operations,  including
          differing  technology  standards,  employment  laws and  practices  in
          foreign countries;

     o    less favorable intellectual property laws;

     o    longer  accounts   receivable   payment  cycles  and  difficulties  in
          collecting payments;

     o    political and economic instability; and

     o    fluctuations in currency exchange rates and the imposition of currency
          exchange controls.

Any of these  factors  could have a  material  adverse  effect on our  business,
financial condition or results of operations.  Our international operations have
and will  continue to require  significant  management  attention  and financial
resources.  We  have  had to  significantly  enhance  our  direct  and  indirect
international sales channels and our support and services  capabilities.  We may
not be  able  to  maintain  or  increase  international  market  demand  for our
products. We may not be able to sustain or increase  international revenues from
licenses or from consulting and customer support.

In some foreign  countries we rely on selected  solution  providers to translate
our software  into local  languages,  adapt it to local  business  practices and
complete  installations in local markets. We are highly dependent on the ability
and integrity of these solution  providers,  and if any of them fail to properly
translate, adapt or install our software, our reputation could be damaged and we
could be subjected to  liability.  If any of these  solution  providers  fail to
adequately  secure our software against  unauthorized  copying,  our proprietary
software could be compromised.

FLUCTUATIONS  IN  CURRENCY  EXCHANGE  RATES AND RISKS  ASSOCIATED  WITH OUR RISK
MANAGEMENT POLICIES MAY AFFECT OUR OPERATING RESULTS.

For  information  regarding our exposure to exchange rate risk, see Part I, Item
7A  "Quantitative  and Qualitative  Disclosures  About Market Risk" contained in
this Report.

FLUCTUATIONS  IN THE MARKET VALUE OF OUR SHORT-TERM  INVESTMENTS AND IN INTEREST
RATES MAY AFFECT OUR OPERATING RESULTS.

For additional  information  regarding the  sensitivity of and risks  associated
with the market value of short-term  investments and interest rates, see Part I,
Item 7A "Quantitative  and Qualitative  Disclosures About Market Risk" contained
in this Report.


                                      -25-
<PAGE>

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 PIVOTAL.

Our  past  revenues  have  been  and our  future  revenues  may  continue  to be
insufficient  to support the expenses of our operations and the expansion of our
business. We may therefore need additional equity or debt capital to finance our
operations. If we are unable to generate sufficient cash flow from operations or
to obtain funds  through  additional  debt or equity  financing,  we may have to
reduce some or all of our development and sales and marketing  efforts and limit
the expansion of our business.

We believe our existing cash and cash equivalents will be sufficient to meet our
capital  requirements  for  at  least  the  next  eighteen  months.  Thereafter,
depending on the  development of our business,  we may need to raise  additional
cash for working capital or other expenses. We also may encounter  opportunities
for  acquisitions or other business  initiatives  that require  significant cash
commitments,  or  unanticipated  problems  or  expenses  that could  result in a
requirement for additional cash before that time.

Therefore, we may seek additional funds through public or private debt or equity
financing  or from other  sources to fund our  operations  and pursue our growth
strategy. We have no commitment for additional financing,  and we may experience
difficulty in obtaining  funding on favorable terms, if at all. Any financing we
obtain may contain  covenants  that restrict our freedom to operate our business
or  may  require  us to  issue  securities  that  have  rights,  preferences  or
privileges senior to our common shares and may dilute your ownership interest in
Pivotal.

THE MARKET FOR OUR PRODUCTS AND THE CURRENT ECONOMIC CONDITIONS ARE UNCERTAIN
AND MAY CAUSE OUR BUSINESS TO SUFFER.

The market for our products and related services is  unpredictable.  We continue
to experience  signs of weakness due to the current  fluctuations in the economy
and the related reluctance of companies to acquire significant  software systems
at this time.  These  market  conditions  may  continue to  deteriorate  causing
further  changes to the buying  behaviour of our customers which would result in
our inability to meet our projected financial results. The severity and duration
of any further deterioration may compel us to consider further reductions in our
workforce to realign with those new market  conditions,  on either a regional or
global scale,  or both.  This reduction  could  adversely  impact our ability to
develop,  deliver and/or  service our existing and new products,  as well as our
ability to attract, maintain and service our customers.

THE INTEGRATION OF FUTURE ACQUISITIONS MAY BE DIFFICULT AND DISRUPTIVE.

We anticipate  that we may acquire other  companies in the future.  Acquisitions
and the integration of new companies take  significant  financial and management
resources  and are  subject  to  risks  commonly  encountered  in  acquisitions,
including, among others, risk of loss of key personnel,  difficulties associated
with  assimilating  ongoing  businesses  and the  ability of our sales force and
consultants to become  educated on new products and services.  We will also need
to integrate the products of acquired  companies into our product  offering.  We
may not  successfully  overcome  these risks or any other  problems  that may be
encountered in connection with future acquisitions.

Accordingly,  it is uncertain whether we will receive the benefits we anticipate
from these  acquisitions  and we may not realize  value from these  acquisitions
comparable to the resources we invest in them.

As part of our business strategy, we regularly review acquisition  opportunities
and we  may  seek  to  grow  by  making  additional  acquisitions.  We  may  not
effectively select acquisition candidates,  negotiate or finance acquisitions or
integrate the acquired  businesses and their  personnel or acquired  products or
technologies  into our  business.  We cannot be certain that we can complete any
acquisition  we  pursue  on  favorable  terms,  or  that  any  acquisition  will
ultimately benefit our business.

OUR PLAN TO EXPAND OUR SERVICE CAPABILITY COULD ADVERSELY AFFECT GROSS PROFIT
MARGINS AND OPERATING RESULTS.

Revenues  from services and  maintenance  have lower gross margins than revenues
from licenses.  Therefore,  an increase in the percentage of revenues  generated
from services and  maintenance  as compared to revenues from licenses will lower
our overall gross margins. In addition, an increase in the cost of revenues from
services  and  maintenance  as  a  percentage  of  revenues  from  services  and
maintenance could have a negative impact on overall gross margins.


                                      -26-
<PAGE>

Although  margins  related to revenues from services and  maintenance  are lower
than  margins  related to revenues  from  licenses,  our  services  organization
currently  generates  gross  profits,  and we are  seeking to expand our service
capability and our revenues from services and maintenance.

Revenues from services and  maintenance  depend in part on renewals of technical
support  contracts  by our  customers,  some of which  may not be  renewed.  Our
ability to increase  revenues from services and maintenance will depend in large
part  on our  ability  to  increase  the  scale  of our  services  organization,
including our ability to successfully  recruit and train a sufficient  number of
qualified services personnel. We may not be able to do so.

If demand for our services  organization does not increase,  gross profits could
fall,  or we may  incur  losses  from  our  services  activities.  The  costs of
delivering  services  could  increase and any  material  increase in these costs
could reduce or eliminate the profitability of our services activities.

WE RELY ON SOFTWARE LICENSED TO US BY THIRD PARTIES FOR FEATURES WE INCLUDE IN
OUR PRODUCTS.

We incorporate into our products  software that is licensed to us by third-party
software  developers.  This includes  Microsoft  SQL Server 2000,  Microsoft SQL
Server  7.0,  Sheridan  Calendar  Control,  InstallShield  3,  Crystal  Reports,
Interactive  Intelligence Enterprise Interaction Center and Intel CT Connect. We
are seeking to further  increase the  capabilities  of our products by licensing
additional  applications from third parties.  A significant  interruption in the
availability of any of this licensed  software could adversely affect our sales,
unless and until we can replace this software with other  software that performs
similar  functions.  Because our products  incorporate  software  developed  and
maintained  by third  parties,  we depend on these third  parties'  abilities to
deliver and support reliable products,  enhance their current products,  develop
new  products  on a timely and  cost-effective  basis,  and  respond to emerging
industry  standards and other  technological  changes.  If third-party  software
offered now or in the future in conjunction  with our products  becomes obsolete
or  incompatible  with future  versions of our  products,  we may not be able to
continue to offer some of the  features  we  presently  include in our  products
unless we can license alternative software or develop the features ourselves.

WE MAY BE UNABLE TO CONTINUE TO DEVELOP  ENHANCEMENTS  TO OUR  PRODUCTS  AND NEW
APPLICATIONS  AND FEATURES THAT RESPOND TO THE EVOLVING  NEEDS OF OUR CUSTOMERS,
RAPID TECHNOLOGICAL CHANGES AND ADVANCES INTRODUCED BY OUR COMPETITORS.

The software market in which we compete is  characterized by rapid change due to
changing customer needs, rapid technological  changes and advances introduced by
competitors.  Existing  products become obsolete and unmarketable  when products
using new technologies  are introduced and new industry  standards  emerge.  New
technologies  could  change  the  way  customer   relationship   management  and
electronic business products are sold or delivered. As a result, the life cycles
of our  products  are  difficult  to  estimate.  We also may need to modify  our
products when third parties change  software we integrate into our products.  To
be successful  we must continue to enhance our current  products and develop new
applications and features.

We may not be able to successfully develop or license the applications necessary
to offer these or other features,  or to integrate these  applications  with our
existing  products.  We have delayed  enhancements and new product release dates
several times in the past and may not be able to introduce new products, product
enhancements, new applications or features successfully or in a timely manner in
the future.  If we delay release of our new products or product  enhancements or
new  applications or features or if they fail to achieve market  acceptance when
released,  we may not be able to keep up with  the  latest  developments  in the
market and our revenues may fall. We may not be able to respond  effectively  to
customer needs, technological changes or advances introduced by our competitors,
and our products could become obsolete.

WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS.

Our success depends in part on our ability to protect our  proprietary  software
and  our  other  proprietary  rights  from  copying,   infringement  or  use  by
unauthorized  parties.  To protect our proprietary rights we rely primarily on a
combination  of  copyright,  trade secret and  trademark  laws,  confidentiality
agreements  with  employees  and  third  parties,  and  protective   contractual
provisions  such as those  contained  in license  agreements  with  consultants,
vendors and customers.  Despite our efforts to protect our  proprietary  rights,
unauthorized  parties  may  copy  aspects  of our  product  and  obtain  and use
information   that  we  regard  as   proprietary.   Other   parties  may  breach
confidentiality  agreements and other protective contracts we have entered into.
We may not become  aware of, or have  adequate  remedies in the event of,  these
types of breaches or unauthorized activities.


                                      -27-
<PAGE>

CLAIMS BY OTHER COMPANIES THAT OUR PRODUCTS INFRINGE THEIR COPYRIGHTS OR PATENTS
COULD ADVERSELY AFFECT OUR ABILITY TO SELL OUR PRODUCTS AND INCREASE OUR COSTS.

If  any of our  products  violates  third-party  proprietary  rights,  including
copyrights and patents, we may be required to re-engineer our products or obtain
licenses  from  third  parties  to  continue   offering  our  products   without
substantial   re-engineering.   Although  some  of  our  current  and  potential
competitors  have sought patent  protection  for similar  customer  relationship
management  and  electronic  business  products,   we  have  not  sought  patent
protection  for our  products.  If a patent has been  issued or is issued in the
future to a third-party that prevents us from using  technology  included in our
products,  we would  need to obtain a license  or  re-engineer  our  product  to
function without  infringing the patent. Any efforts to re-engineer our products
or obtain  licenses from third  parties may not be successful  and, in any case,
could  substantially  increase our costs,  force us to interrupt  sales or delay
product releases.

OUR PRODUCTS, AND PRODUCTS WE RELY ON, MAY SUFFER FROM DEFECTS OR ERRORS.

Software  products as complex as ours may contain errors or defects,  especially
when first  introduced or when new versions are  released.  We have had to delay
commercial release of some versions of our products until software problems were
corrected,  and in some  cases have  provided  product  enhancements  to correct
errors in released  products.  Our new products and product  enhancements or new
applications or features may not be free from errors after commercial  shipments
have begun. Any errors that are discovered after commercial release could result
in loss of  revenues or delay in market  acceptance,  diversion  of  development
resources,  damage to our reputation,  increased  service and warranty costs and
liability claims.

Our  end-user  licenses  contain  provisions  that limit our exposure to product
liability   claims,   but  these  provisions  may  not  be  enforceable  in  all
jurisdictions.  In some cases, we have been required to waive these  contractual
limitations.  Further,  we  may  be  exposed  to  product  liability  claims  in
international  jurisdictions  where  our  solution  provider  has  supplied  our
products  and  negotiated  the license  without our  involvement.  A  successful
product  liability  claim could result in material  liability  and damage to our
reputation.

In  addition,  products we rely on, such as  Microsoft  platform  products,  may
contain  defects or  errors.  Our  products  rely on these  products  to operate
properly.  Therefore,  any defects in these products could adversely  affect the
operation  of and market for our  products,  reduce our  revenues,  increase our
costs and damage our reputation.

IF OUR CUSTOMERS' SYSTEM SECURITY IS BREACHED, OUR BUSINESS AND REPUTATION COULD
SUFFER.

A fundamental  requirement for online  communications is the secure transmission
of confidential  information over the Internet.  Users of our products  transmit
their and their customers'  confidential  information over the Internet.  In our
license  agreements  with our  customers,  we  disclaim  responsibility  for the
security of confidential  data and have contractual  indemnities for any damages
claimed  against us. However,  if  unauthorized  third parties are successful in
obtaining  confidential  information from users of our products,  our reputation
and business may be damaged and, if our contractual  disclaimers and indemnities
are not enforceable, we may be subjected to liability.

CHANGES IN  ACCOUNTING  STANDARDS  AND IN THE WAY WE CHARGE FOR  LICENSES  COULD
AFFECT OUR FUTURE OPERATING RESULTS.

We  recognize  revenues  from the sale of  software  licenses on delivery of our
products if:

     o    persuasive evidence of an arrangement exists,

     o    the fee is fixed and determinable,

     o    we can  objectively  allocate  the total fee among all elements of the
          arrangement, and

     o    collection of the license fee is probable.

Under some license  arrangements,  with either a fixed or indefinite  term,  our
customers agree to pay for the license with periodic  payments  extending beyond
our standard payment terms. We recognize revenues from these arrangements as the
periodic  payments  become  due,  provided  all  other  conditions  for  revenue
recognition  are  met.  We have not  entered  into  many of these  arrangements;


                                      -28-
<PAGE>

however,  if they become popular with our customers,  we may have lower revenues
in the short-term than we would  otherwise,  because  revenues for licenses sold
under these  arrangements will be recognized over time rather than upon delivery
of our product.

We recognize  maintenance revenues ratably over the contract term, typically one
year, and recognize  revenues for consulting,  education and  implementation and
customization services as the services are performed.

Administrative agencies responsible for setting accounting standards,  including
the  United  States  Securities  and  Exchange   Commission  and  the  Financial
Accounting  Standards Board, are also reviewing the accounting standards related
to stock-based  compensation.  Any changes to these accounting  standards or any
other accounting standards or the way these standards are interpreted or applied
could  require  us to change the way we  recognize  revenue,  account  for share
compensation,  or other aspects of our business which could adversely affect our
reported financial results.

OUR SHARE PRICE MAY CONTINUE TO BE VOLATILE.

Our share price has fluctuated  substantially  since our initial public offering
in August 1999. The trading price of our common shares is subject to significant
fluctuations in response to variations in quarterly operating results,  the gain
or loss of  significant  orders,  changes in revenues and earnings  estimates by
securities analysts,  announcements of technological innovations or new products
by us or our  competitors,  general  conditions  in the  software  and  computer
industries and other events or factors. In addition, the stock market in general
has  experienced  extreme price and volume  fluctuations  that have affected the
market  price for many  companies in  industries  similar or related to ours and
these  fluctuations  have been  unrelated to the operating  performance of these
companies. These market fluctuations have adversely affected and may continue to
adversely affect the market price of our common shares. During the calendar year
2002,  several  high-profile  scandals  and  controversies  regarding  allegedly
improper  methods of accounting by certain  public  companies and their auditors
have  arisen.  These  scandals  and  controversies  could  have  the  effect  of
depressing  the capital  markets  generally  and the price of our common  shares
could be  adversely  affected as a part of an overall  trend to  divestiture  of
holdings in shares in favor of other types of non-share  investments that may be
seen as more secure.

CERTAIN  SHAREHOLDERS  MAY BE ABLE TO EXERCISE  CONTROL OVER  MATTERS  REQUIRING
SHAREHOLDER APPROVAL.

Our  current  officers,  directors  and  entities  affiliated  with us  together
beneficially owned a significant  portion of our outstanding common shares as of
June  30,  2002.  While  these  shareholders  do  not  hold  a  majority  of our
outstanding common shares, they will be able to exercise  significant  influence
over matters requiring shareholder approval, including the election of directors
and the approval of mergers,  consolidations  and sales of our assets.  This may
prevent or discourage tender offers for our common shares.

ITEM 2.  PROPERTIES

Our principal administrative, professional services and education facilities are
located in North  Vancouver,  British  Columbia,  Canada,  and our  research and
development  campus is  located  in  Vancouver,  British  Columbia,  Canada  and
together  consist of  approximately  80,000 square feet of office space in three
separate  buildings.  The leases for the buildings in North Vancouver  expire in
October 2002. We intend to  consolidate  these offices to one newly  constructed
facility in Vancouver,  British Columbia with a scheduled completion in the fall
of 2002.  Pursuant to an offer to lease this facility,  our obligation to occupy
the premises and commence  paying rent does not arise until  construction of the
building is complete.  Once construction is finished,  the building will consist
of approximately  130,000 square feet of office space under a lease that expires
in August  2017.  Our  principal  marketing  facility  is located  in  Kirkland,
Washington and consists of approximately 13,600 square feet of office space held
under a lease that expires in December 2003. We also have a significant research
and  development  facility in Atlanta,  Georgia that  consists of  approximately
26,708  square feet of office space under a lease that expires on April 2006. We
also have a significant  professional  services  facility in Dallas,  Texas that
consists of 7,877  square  feet of space  under a lease that  expires in October
2002. We also have a research and development and professional services facility
in Toronto,  Ontario that  consists of 13,993 square feet of space under a lease
that expires in July 2005.

Our main administrative office for Europe, the Middle East and Africa is located
in Dublin,  Ireland held under a lease expiring in May 2007. Our principal sales
and marketing office for Europe, the Middle East and Africa is located in Luton,
England held under a lease that expires in November 2005.

As of June 30, 2002, we also leased offices in: Tokyo, Japan; Sydney, Australia;
Auckland, New Zealand;  Mainz, Germany; High Point, North Carolina; Des Plaines,
Illinois; San Bruno and Irvine, California; Dallas, Texas; Denver, Colorado; Rue
Lauriston, France; Paris, France; Newton, Massachusetts; Morristown, New Jersey;
New York,  New York;  Calverton,  Maryland;  St.  Paul,  Minnesota  and Toronto,
Ontario.


                                      -29-
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

As of the date  hereof,  there is no  material  litigation  pending  against us.
However,  as of June  2002,  we have  initiated  proceedings  against  Interpath
Communications  in the United States District Court for the Western  District of
Washington, in the context of a contractual dispute, for general and unspecified
damages,  and  in  response  to  which  Interpath  Communications  has  filed  a
counterclaim against us. We believe any counterclaim of Interpath Communications
to be without merit and we will vigorously  defend any counterclaim made against
us, as well as continue to pursue the litigation we have initiated against them.
Within the last fiscal year, we also settled a dispute with  FourthChannel  Inc.
in commercial  arbitration in the amount of $1.42 million. From time to time, we
are a party  to  litigation  and  claims  incident  to the  ordinary  course  of
business.  While the results of litigation  and claims cannot be predicted  with
certainty,  we believe  that the final  outcome of such  matters will not have a
material  adverse  effect  on our  business,  financial  condition,  results  of
operations and cash flows.

ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

Not Applicable.


                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

Our common shares began trading on the Nasdaq  National Market on August 5, 1999
under the symbol PVTL. The table below lists the high and low closing prices per
share of our common shares for each quarterly  period during the past two fiscal
years, as reported on the Nasdaq National Market.

<TABLE>
                                                    Price Range               Price Range
                                                  of Common Shares          of Common Shares
                                                   for Year Ended            for Year Ended
                                                   June 30, 2002             June 30, 2001
                                                   -------------             -------------
                                                   High       Low            High         Low
                                                   ----       ---            ----         ---
<S>                                             <C>         <C>            <C>         <C>
First Quarter...................................$ 18.20     $ 4.17         $ 59.38     $ 23.44
Second Quarter..................................$  6.15     $ 2.70         $ 70.23     $ 31.00
Third Quarter...................................$  6.54     $ 4.83         $ 35.56     $ 10.31
Fourth Quarter..................................$  5.68     $ 3.13         $ 25.10     $  9.44
</TABLE>


Our common shares began trading on the Toronto Stock Exchange on August 17, 2000
under the symbol PVT. The table below lists the high and low closing  prices per
share of our common shares for each quarterly  period during the past two fiscal
years, as reported on the Toronto Stock Exchange.

<TABLE>
                                                    Price Range               Price Range
                                                  of Common Shares          of Common Shares
                                                   for Year Ended            for Year Ended
                                                   June 30, 2002             June 30, 2001
                                                   -------------             -------------
                                                   High           Low           High           Low
                                                   ----           ---           ----           ---
<S>                                             <C>           <C>           <C>            <C>
First Quarter...................................Cdn$ 22.40    Cdn$ 6.62     Cdn$  88.25    Cdn$  54.75
Second Quarter..................................Cdn$  9.75    Cdn$ 4.32     Cdn$ 105.00    Cdn$  48.00
Third Quarter...................................Cdn$ 10.39    Cdn$ 7.46     Cdn$  54.00    Cdn$  16.20
Fourth Quarter..................................Cdn$  8.95    Cdn$ 4.75     Cdn$  38.46    Cdn$  14.70
</TABLE>


SHAREHOLDERS

As of August 1, 2002,  there were  approximately  396 registered  holders of our
common  shares.  This does not include the number of persons whose shares are in
nominee or "street name" accounts through brokers.



                                      -30-
<PAGE>

DIVIDENDS

We have never  declared  or paid any cash  dividends  on our share  capital.  We
currently  intend to retain  any future  earnings  to fund the  development  and
growth of our business and we do not anticipate paying any cash dividends in the
foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES

Not applicable

USE OF PROCEEDS

On August 4, 1999,  our  registration  statement on Form F-1,  Registration  No.
333-82871,  became effective. The offering date was August 5, 1999. The offering
has terminated as a result of all of the shares offered being sold. The managing
underwriters  were  Merrill  Lynch & Co.,  Bear,  Stearns  & Co.  Inc.  and Dain
Rauscher  Wessels.  The offering  consisted  of 3,975,000 of our common  shares,
which included 475,000 common shares offered pursuant to the subsequent exercise
of the  underwriter's  over  allotment  option on August 19, 1999. The aggregate
price of the shares  offered and sold was $47.7  million.  Proceeds to us, after
$3.3 million in underwriting discounts and commissions and $1.3 million in other
expenses, were $43.1 million. During the year ended June 30, 2000, we used $14.5
million of the net proceeds in connection with  acquisitions of Exactium,  Simba
and Transitif.  During the year ended June 30, 2001, we used $5.7 million of the
net proceeds in connection with  acquisitions of Ionysys,  Project One, Software
Spectrum and Inform.  The  remaining  $22.9 million of the net proceeds was used
for working capital.

None of the net  offering  proceeds  were paid,  and none of the initial  public
offering expenses related to payments, directly or indirectly, to our directors,
officers or general partners or their associates,  persons owning 10% or more of
any class of securities or our affiliates.

Exchange Controls

There are no government  laws,  decrees or  regulations in Canada which restrict
the export or import of capital or which  affect the  remittance  of  dividends,
interest or other payments to  non-resident  holders of our common  shares.  Any
remittances of dividends to United States  residents and to other  non-residents
are, however, subject to withholding tax. See "Taxation" below.

Taxation

Canadian Federal Income Taxation

We consider that the following summary fairly describes in general the principal
Canadian  federal income tax  consequences  applicable to a holder of our common
shares who at all  material  times deals at arm's  length with us, who holds all
common shares as capital property,  who is resident in the United States, who is
not a resident of Canada and who does not use or hold,  and is not deemed to use
or hold, his common shares of Pivotal in connection  with carrying on a business
in Canada (a "non-resident  holder").  It is assumed that the common shares will
at all  material  times be listed on a stock  exchange  that is  prescribed  for
purposes of the Income Tax Act (Canada) (the "ITA") and regulations  thereunder.
The Canadian federal income tax consequences applicable to holders of our common
shares will not change if we are deemed  inactive by The Toronto Stock Exchange.
Investors  should  however  be  aware  that  the  Canadian  federal  income  tax
consequences  applicable to holders of our common shares will change if we cease
to be listed on a prescribed  stock  exchange like The Toronto  Stock  Exchange.
Accordingly, holders and prospective holders of our common shares should consult
with their own tax advisors with respect to the income tax  consequences of them
purchasing,  owing and  disposing  of our  common  shares  should we cease to be
listed on a prescribed stock exchange.

This summary is based upon the current  provisions  of the ITA, the  regulations
thereunder,  the Canada-United States Tax Convention as amended by the Protocols
thereto (the  "Treaty")  as at the date of the  registration  statement  and the
currently publicly announced administrative and assessing policies of the Canada
Customs and Revenue Agency (the "CCRA"). This summary does not take into account
Canadian provincial income tax consequences.  This description is not exhaustive
of all possible  Canadian federal income tax consequences and does not take into
account or anticipate any changes in law,  whether by legislative,  governmental
or judicial action. This summary does,  however,  take into account all specific
proposals to amend the ITA and regulations thereunder, publicly announced by the
Government of Canada to the date hereof.

This summary does not address  potential tax effects relevant to us or those tax
considerations  that  depend  upon  circumstances  specific  to  each  investor.
Accordingly, holders and prospective holders of our common shares should consult
with their own tax advisors with respect to the income tax  consequences to them
of purchasing, owning and disposing of our common shares.



                                      -31-
<PAGE>

Dividends

The ITA provides that dividends and other  distributions  deemed to be dividends
paid or deemed to be paid by a Canadian  resident  corporation (such as Pivotal)
to a non-resident  of Canada shall be subject to a non-resident  withholding tax
equal to 25% of the gross amount of the dividend of deemed dividend.  Provisions
in the ITA  relating  to  dividend  and deemed  dividend  payments  to and gains
realized by non-residents of Canada, who are residents of the United States, are
subject  to the  Treaty.  The Treaty  may  reduce  the  withholding  tax rate on
dividends as discussed below.

Article  X of the  Treaty as  amended  by the  US-Canada  Protocol  ratified  on
November 9, 1995  provides a 5%  withholding  tax on gross  dividends  or deemed
dividends paid to a United States  corporation which  beneficially owns at least
10% of our voting stock paying the dividend.  In cases where dividends or deemed
dividends are paid to a United States  resident  (other than a corporation) or a
United States  corporation  which  beneficially owns less than 10% of our voting
stock,  a withholding  tax of 15% is imposed on the gross amount of the dividend
or deemed  dividend  paid. We will be required to withhold any such tax from the
dividend and remit the tax directly to CCRA for the account of the investor.

The reduction in withholding tax from 25%,  pursuant to the Treaty,  will not be
available:

(a)  if the shares in respect of which the dividends are paid formed part of the
     business property or were otherwise  effectively connected with a permanent
     establishment or fixed base that the holder has or had in Canada within the
     12 months preceding the disposition, or

(b)  the holder is a U.S. LLC which is not subject to tax in the U.S.

The Treaty  generally  exempts  from  Canadian  income tax  dividends  paid to a
religious, scientific, literary, educational or charitable organization or to an
organization exclusively administering a pension, retirement or employee benefit
fund or plan,  if the  organization  is resident in the U.S.  and is exempt from
income tax under the laws of the U.S.

Capital Gains

A  non-resident  holder is not  subject  to tax under  the ITA in  respect  of a
capital  gain  realized  upon the  disposition  of our  share  unless  the share
represents "taxable Canadian property" to the holder thereof.  Our Common shares
will be considered taxable Canadian property to a non-resident holder only if:

(a)  the non-resident holder;

(b)  persons with whom the non-resident holder did not deal at arm's length; or

(c)  the  non-resident  holder  and  persons  with whom he did not deal at arm's
     length,

owned not less than 25% of our issued  shares of any class or series at any time
during  the  five  year  period  preceding  the  disposition.  In the  case of a
non-resident  holder to whom our shares represent  taxable Canadian property and
who is  resident  in the United  States,  no Canadian  taxes will  generally  be
payable  on a capital  gain  realized  on such  shares  by reason of the  Treaty
unless:

     (a)  the value of such  shares is derived  principally  from real  property
          (including resource property) situated in Canada,

     (b)  the holder was resident in Canada for 120 months  during any period of
          20 consecutive  years  preceding,  and at any time during the 10 years
          immediately  preceding,  the  disposition and the shares were owned by
          him when he ceased to be a resident of Canada,

     (c)  they  formed  part  of  the  business   property  or  were   otherwise
          effectively  connected  with a permanent  establishment  or fixed base
          that the  holder has or had in Canada  within the 12 months  preceding
          the disposition, or

     (d)  the holder is a U.S. LLC which is not subject to tax in the U.S.


                                      -32-
<PAGE>

If subject to Canadian tax on such a disposition,  the  taxpayer's  capital gain
(or  capital  loss) from a  disposition  is the  amount by which the  taxpayer's
proceeds  of  disposition  exceed  (or are  exceeded  by) the  aggregate  of the
taxpayer's  adjusted  cost  base  of  the  shares  and  reasonable  expenses  of
disposition.  For Canadian  income tax purposes,  the "taxable  capital gain" is
equal to one-half of the capital gain.

ALL  PROSPECTIVE  INVESTORS  ARE ADVISED TO CONSULT  THEIR OWN TAX ADVISORS WITH
RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF PURCHASING OUR COMMON SHARES.


ITEM 6.  SELECTED FINANCIAL DATA

The following selected consolidated financial data should be read in conjunction
with  the  Consolidated   Financial  Statements  and  Notes  thereto,  and  with
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations"  included  elsewhere in this report.  The consolidated  statement of
operations  data for each of the three years ended June 30, 2002,  2001 and 2000
and the consolidated balance sheet data as of June 30, 2002 and 2001 are derived
from  audited  financial  statements  included  elsewhere  in this  report.  The
consolidated  statement of operations data for the years ended June 30, 1999 and
1998 and the consolidated  balance sheet data as of June 30, 2000, 1999 and 1998
are derived from audited consolidated  financial statements not included in this
report.

<TABLE>
                                                                              YEARS ENDED JUNE 30,
                                                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                               --------------------------------------------------------------------------------
                                                    2002              2001              2000            1999           1998
                                               -------------     -------------     -------------   -------------  -------------
CONSOLIDATED STATEMENT OF
   OPERATIONS DATA:
Revenues:
<S>                                                <C>              <C>               <C>             <C>            <C>
     License                                       $29,282          $ 58,510          $ 37,384        $ 18,819       $ 11,311
     Services and maintenance                       40,334            37,644            16,169           6,852          3,147
                                                    ------          --------          --------        --------       --------
         Total revenues                             69,616            96,154            53,553          25,671         14,458
                                                    ------          --------          --------        --------       --------
Cost of Revenues:
     License                                        1,956              3,800             2,141             536            401
     Services and maintenance                       22,331            21,030             8,761           3,422          1,530
                                                    ------          --------          --------        --------       --------
         Total cost of revenues                     24,287            24,830            10,902           3,958          1,931
                                                    ------          --------          --------        --------       --------

Gross profit                                        45,329            71,324            42,651          21,713         12,527
Operating Expenses:
     Sales and marketing                            41,417            51,230            31,165          16,830          9,226
     Research and development                       16,963            18,750             8,906           4,958          1,910
     General and administrative (1)                 12,820            13,567             4,190           2,466          1,513
     Restructuring and other charges (2)            53,576                --                --              --             --
     Amortization of goodwill                       16,157            23,062             1,409              --             --
     In-process research and development and
         other charges                                  --                --             6,979              --             --
                                                   -------          --------          --------        --------       --------
         Total operating expenses                  140,933           106,609            52,649          24,254         12,649
                                                   -------          --------          --------        --------       --------
</TABLE>



                                      -33-
<PAGE>

<TABLE>
                                                                                YEARS ENDED JUNE 30,
                                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                  -------------------------------------------------------------------------------
                                                      2002            2001            2000             1999             1998
                                                  -----------     -----------     -----------    ---------------  ---------------
<S>                                                <C>             <C>              <C>                <C>                <C>
Loss from operations                               (95,604)        (35,285)         (9,998)            (2,541)            (122)
                                                  ---------       ---------       ---------      -------------    -------------
Other income (expenses)
Interest and other income                            1,289           3,333           2,193                (24)             136
Impairment of investments                           (1,244)             --              --                 --               --
                                                  ---------       --------        --------       ------------     ------------
                                                        45           3,333           2,193                (24)             136
                                                  --------        --------        --------       -------------    ------------

Income (loss) before income taxes                  (95,559)        (31,952)         (7,805)            (2,565)              14

Income taxes                                           386             503             557                243               10
                                                  --------        --------        --------           --------         --------

Net income (loss) for the period                  $(95,945)       $(32,455)       $ (8,362)          $ (2,808)        $      4
                                                  =========       ========        ========           ========         ========

Basic and diluted earnings (loss) per share       $  (3.99)      $   (1.40)      $   (0.45)         $  (0.72)        $      --
Pro forma basic and diluted loss per share (1)    $     --          $   --       $   (0.39)         $  (0.18)        $      --

Shares used to calculate earnings (loss) per
share
     Basic                                          24,039          23,173          18,643             3,888             3,720
     Diluted                                        24,039          23,173          18,643             3,888            14,927
     Pro forma basic and diluted loss per share         --              --          21,339            15,940                --
     (3)
</TABLE>


<TABLE>
                                                                                   AS OF JUNE 30,
                                                                                   (IN THOUSANDS)
                                                  ----------------------------------------------------------------------------
                                                     2002            2001            2000            1999             1998
                                                  ---------       ---------       ---------      ------------     ------------
CONSOLIDATED BALANCE SHEET DATA:
<S>                                               <C>             <C>             <C>               <C>              <C>
Cash and cash equivalents                         $  20,322       $  13,247       $   4,734         $ 9,338          $ 1,202
Working capital                                      23,572          58,366          28,297           7,257            3,317
Total assets                                         68,645         168,443         121,945          21,722           10,752
Long-term obligations                                 3,505             592              --              --               --
Redeemable convertible preferred shares                  --              --              --          17,500            9,500
Total shareholders' equity (deficit)                 33,783         128,201          96,097          (7,192)          (4,455)
</TABLE>

NOTES:

(1)  General  and  administrative  expense  for the year  ended  June  30,  2001
     includes $1.8 million for asset impairments and deferred stock compensation
     charges.

(2)  Restructuring  costs and other  charges  for the year ended  June 30,  2002
     includes  $3.8 million for workforce  reduction,  $5.3 million for contract
     settlement and other costs,  $11.5 million for excess  facilities and asset
     impairments  and $33.0  million for the  impairment  of goodwill  and other
     purchased intangible assets.

(3)  See note 1 of notes to consolidated financial statements for an explanation
     of the method used to calculate  basic and diluted per share  amounts.  The
     2000 and 1999 amounts are calculated on a pro forma basis.




                                      -34-
<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATION

OVERVIEW


Pivotal Corporation offers Customer Relationship  Management (CRM) software that
enables  mid-sized  enterprises  worldwide  to acquire,  serve and manage  their
customers.  Pivotal's  target  customers are companies and business units in the
revenue range of $100 million to $3 billion.  Customer  Relationship  Management
products  and  services  automate and manage  marketing,  selling and  servicing
processes.  We refer to our  software as the Pivotal CRM Suite.  The Pivotal CRM
Suite is designed to  complement  and integrate  with a business'  supply chain,
therefore enabling businesses to improve efficiency and increase revenue.

Our  products  are used in 44 countries  and are  available in English,  French,
German,  Spanish,  Portuguese,  Japanese,  Chinese and  Hebrew.  More than 1,500
companies globally use Pivotal. We market and sell our products through a direct
sales force as well as through third-party solution providers.

Our common  shares are listed on the  Nasdaq  National  Market  under the symbol
"PVTL" and on the Toronto Stock Exchange under the symbol "PVT". Our head office
is located  at 300 - 224 West  Esplanade,  North  Vancouver,  British  Columbia,
Canada V7M 3M6, and our telephone number is (604) 988-9982. Our home page on the
Internet can be found at www.pivotal.com.  Information  contained on our website
does not constitute part of this report.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We believe  that there are several  accounting  policies  that are  important to
understanding  our historical and future  performance,  as these policies affect
the  reported  amounts  of  revenue  and the more  significant  areas  involving
management's  judgments and estimates.  These critical  accounting  policies and
estimates relate to revenue  recognition and the provision for doubtful accounts
receivable.  These policies,  and our procedures related to these policies,  are
described  in  detail  below.  In  addition,  please  refer  to  Note  1 to  the
accompanying  consolidated  financial  statements for further  discussion of our
accounting policies.

Sources of Revenue and Revenue Recognition Policy

We derive our revenues  from the sale of licenses and services and  maintenance.
License and  maintenance  revenues are normally  generated  from  licensing  our
products with end-users, value added resellers and application service providers
and, to a lesser extent,  through distribution of third party products.  Service
revenues are generated from consulting  services and education  services sold to
end-users.

We recognize  license revenues on delivery of our solutions to the customer when
all of the following conditions have been satisfied:

     o    there  is  persuasive  evidence  of  an  arrangement  (we  consider  a
          non-cancelable   agreement  signed  by  us  and  the  customer  to  be
          persuasive evidence of an arrangement);

     o    the fee is fixed or  determinable  (we consider the fee to be fixed or
          determinable  if the fee is not subject to refund or adjustment and if
          we have not granted extended payment terms to the customer); and

     o    the collection of the license fee is probable (we consider  collection
          to be probable if our  internal  credit  analysis  indicates  that the
          customer  will be able to pay  amounts  as they  become  due under the
          arrangement).

Revenues  for  multiple-element  arrangements,  which could  consist of software
licenses,  upgrades,  enhancements,  maintenance  and consulting  services,  are
allocated  among the  component  elements  based upon the relative fair value of
each element.  The fair value of each element is determined by the price charged
by us when that  element is sold  separately,  or, in the case of an element not
yet sold separately, by the price established by authorized management, if it is
probable  that the  price,  once  established,  will not  change  before  market
introduction.

We enter into reseller and sub-licensing arrangements that provide a fee payable
to us based on a percentage of list prices. We recognize revenue only on the net
fee payable to us from the reseller upon sell-through to the end customer by the
reseller.

We typically  sell first year  maintenance  with the related  software  license.
Revenue  related  to  maintenance  is  recognized  evenly  over  the term of the
maintenance contract, typically one year. Revenues relating to technical support
and  maintenance  have  increased  due to our  increasing  customer base and the
renewal of technical support and maintenance  contracts upon expiration of first
year maintenance arrangements.

We recognize revenue from consulting,  implementation  services and education as
these services are performed. We derive revenue from these services primarily on
a  time-and-materials  basis  under a  separate  service  arrangement  with  the
customer.  In circumstances  where we enter into fixed-price  service contracts,
revenue is recognized  on a  percentage-of-completion  basis,  which is measured
based upon actual person-hours  performed.  Much of the implementation  services
provided to our customers in connection with  installations



                                      -35-
<PAGE>

of our  solutions  are provided by  third-party  consulting  and  implementation
service  providers.  These  third-party  service providers  ordinarily  contract
directly with the customer.

On occasion,  we have purchased  goods or services for our operations from these
vendors  at or about  the  same  time we have  licensed  our  software  to these
organizations.  These  transactions  are  negotiated  separately and recorded at
terms we consider to be arms-length.

On January 1, 2002,  we adopted  Topic No.  D-103.  Topic  D-103  requires  that
certain  out-of-pocket  expenses  re-billed  to customers be recorded as revenue
versus an offset to the related  expense.  Prior to the adoption of Topic D-103,
we  recorded  re-billed  out-of-pocket  expenses  as an  offset  to the  related
expense.  Comparative financial statements for prior periods have been conformed
to the current year presentation.  This change had no effect on operating income
or net income for any period presented.

Provision for Doubtful Accounts Receivable

We initially  record our  provision  for doubtful  accounts  based on historical
experience  of  write-offs  and then  adjust this  provision  at the end of each
reporting period based on a detailed  assessment of our accounts  receivable and
allowance  for doubtful  accounts.  In  estimating  the  provision  for doubtful
accounts,  we  consider  the  age of the  accounts  receivable,  our  historical
write-offs,  the credit worthiness of the customers,  the economic conditions of
the customer's industry,  and general economic conditions,  among other factors.
Should any of these factors  change,  the estimates made by us will also change,
which could  impact the level of our future  provision  for  doubtful  accounts.
Specifically,  if the financial  condition of our customers were to deteriorate,
affecting  their ability to make  payments,  additional  provisions for doubtful
accounts  may be  required.  During  the  fourth  quarter  of  fiscal  2001  and
throughout fiscal 2002, we experienced delays in payments from certain customers
resulting from a deterioration of financial conditions affecting these customers
due to the weak North  American  economy and capital  markets.  As a result,  we
recorded  significant changes in our bad debts reserve.  During the twelve month
periods ended June 30, 2002, 2001 and 2000, we recorded  provisions for doubtful
debts of $5.5 million, $3.3 million and $0.6 million, respectively.

Restructuring and Other Charges

Pivotal has recorded  restructuring charges associated with workforce reduction,
consolidation of excess facilities,  contract settlements and asset impairments.
These  charges  are  based  on  management's  best  estimate  at the time of the
restructuring,  and are updated on a quarterly basis based on actual experience.
During the year ended June 30, 2002,  these  charges  totaled  $53.6  million of
which $20.6  million  related to  restructuring  activities,  and $33.0  million
related to the  impairment of goodwill and other  purchased  intangible  assets.
Total cash charges were $11.8 million, of which $6.4 million had been paid prior
to June  30,  2002  with the  remaining  $5.4  million  represented  in  accrued
liabilities  as at June 30,  2002.  The  current  portion of this amount is $2.3
million, with the balance of $3.1 million representing the non-current portion.


Impairment of Long-Lived Assets

Long-lived assets and certain identifiable intangible assets to be held and used
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable. Determination of
recoverability  is  based on an  estimate  of  undiscounted  future  cash  flows
resulting from the use of the asset and its eventual disposition. Measurement of
an impairment  loss for long-lived  assets and certain  identifiable  intangible
assets  that  management  expects to hold and use are based on the fair value of
the asset.  Long-lived assets and certain  identifiable  intangible assets to be
disposed  of are  reported  at the lower of  carrying  amount or fair value less
costs to sell.  In the years  ended  June 30,  2002 and June 30,  2001,  Pivotal
recorded  impairment  losses  of $38.8  million  and  $0.9  million  related  to
long-lived assets having carrying values in excess of the cash flows expected to
result from their  disposal.  The charge for fiscal 2002  included  $5.8 million
related to  impairments  of  capital  assets  and $33.0  million  related to the
impairment of goodwill and other purchased intangible assets. No such impairment
loss had been identified by Pivotal for the year ended June 30, 2000.

Investments in Public and Non-Public Companies

At June 30, 2002 and June 30,  2001,  we held  investments  in  publicly  traded
companies in which we held less than 20% of the voting  rights and over which we
did  not  exercise  significant  influence.  The  investments  are  included  in
goodwill,  intangibles and other assets and are recorded at fair value, which is
determined  based on quoted market prices,  with net unrealized gains and losses
included in  accumulated  other  comprehensive  loss.  If we  determine  that an
investment  has an other than  temporary  decline in fair value,  an  impairment
charge  is  included  in other  income  and  expenses  and  previously  recorded
mark-to-market  adjustments that were recorded in other comprehensive income are
reversed.  During the year ended June 30, 2002,  we recorded a writedown of $848
related to other than  temporary  declines  in the value of its  investments  in
public companies.

We also held certain  investments in non-publicly  traded  companies in which we
held  less  than  20% of the  voting  rights  and in  which  we do not  exercise
significant  influence.  These  investments  are  included in goodwill and other
assets  and  are  accounted  for on a cost  basis.  Under  the  cost  method  of
accounting,  investments  in  private  companies  are  carried  at cost  and are
adjusted only for other-than-temporary  declines in fair value, distributions of
earnings  and  additional  investments.  We  periodically  evaluate  whether the



                                      -36-
<PAGE>

declines  in  fair  value  of our  investments  are  other-than-temporary.  This
evaluation  consists  of a review of  qualitative  and  quantitative  factors by
members of senior  management,  including a review of the  investee's  financial
condition,  results of operations,  operating trends and other financial ratios.
We further  consider  the  implied  value from any  recent  rounds of  financing
completed  by the  investee,  as well as  market  prices  of  comparable  public
companies.  During the year ended June 30,  2002,  we  recorded a charge of $375
related to impairment in the value of investments in non-public companies.

RECENT ACQUISITIONS

During the year ended June 30, 2000, we completed the acquisitions of Transitif,
S.A.,  Exactium Ltd. and Simba  Technologies Inc. During the year ended June 30,
2001, we completed acquisitions of Ionysys Technology  Corporation,  Project One
Business  Technologies Inc.,  Software Spectrum CRM, Inc. and Inform, Inc. These
acquisitions  were  accounted  for under  the  purchase  method  of  accounting.
Accordingly,  the results of operations of each  acquisition are included in our
consolidated statement of operations since the acquisition date, and the related
assets and liabilities  were recorded based upon their respective fair values at
the date of  acquisition.  During  the year  ended  June  30,  2002,  we did not
complete any acquisitions.

RESULTS OF OPERATIONS

The following table sets forth the consolidated statement of operations data for
each of the  years in the  three  years  ended  June  30,  2002  expressed  as a
percentage of total revenues:



                                      -37-
<PAGE>

<TABLE>
                                                                      Year ended June 30,
                                                     -----------------------------------------------
                                                         2002              2001               2000
----------------------------------------------------------------------------------------------------
<S>                                                       <C>               <C>                <C>
Revenues:
     License                                              42%               61%                70%
     Services and maintenance                             58%               39%                30%
         Total revenues                                  100%              100%               100%

Cost of Revenues:
     License                                               3%                4%                 4%
     Services and maintenance                             32%               22%                16%
----------------------------------------------------------------------------------------------------
         Total cost of revenues                           35%               26%                20%
----------------------------------------------------------------------------------------------------
Gross profit                                              65%               74%                80%
----------------------------------------------------------------------------------------------------
Operating expenses:
     Sales and marketing                                  59%               54%                59%
     Research and development                             24%               20%                17%
     General and administrative                           18%               14%                 8%
     Restructuring and other charges                      77%                -                   -
     Amortization of goodwill                             23%               24%                 3%
     In-process research and development and               -
         other charges                                                       -                 13%
----------------------------------------------------------------------------------------------------
         Total operating expenses                        201%              112%               100%
----------------------------------------------------------------------------------------------------
Loss from operations                                    (136%)             (38%)              (20%)

Other income (expenses):
     Interest and other income                             2%                4%                 4%
     Impairment of investments                            (2%)                -                  -
----------------------------------------------------------------------------------------------------
                                                           0%                4%                 4%

Loss before income taxes                                (136%)             (34%)              (16%)

Income taxes                                               1%                1%                 1%
----------------------------------------------------------------------------------------------------
Net loss                                                (137%)             (35%)              (17%)
====================================================================================================
</TABLE>


YEARS ENDED JUNE 30, 2002 AND 2001

REVENUES

Total  revenues  decreased 28% to $69.6 million for the year ended June 30, 2002
from $96.2 million for the year ended June 30, 2001.

License

Revenues  from  licenses  decreased 50% to $29.3 million for the year ended June
30, 2002 from $58.5 million for the year ended June 30, 2001.

Our revenues from licenses decreased as a result of the recent economic slowdown
in the latter half of 2001 through 2002. This change in economic  conditions has
had a direct  impact on the  buying  patterns  of our  potential  customers,  as
evidenced through reduced corporate capital budgets and longer sales cycles. Our
license  revenue growth depends on the overall demand for customer  relationship
management solutions.  The overall demand for our software depends in large part
on the general economic and business conditions.

Revenues from licenses  represented  42% and 61% of total revenues for the years
ended June 30, 2002 and 2001,  respectively.  License  revenues  decreased  as a
percentage of total revenues primarily due to the fact that license revenues are
more  immediately  impacted by



                                      -38-
<PAGE>

changes in economic conditions, whereas service revenues are derived from longer
term projects and also include maintenance revenues that tend to be recurring in
nature.  North  American  license  revenues  accounted  for 53% and 67% of total
license  revenues  in the years  ended  June 30,  2002 and  2001,  respectively.
International  license  revenues  increased as a percentage of total revenues as
demand  for our  products  increased  as we  expanded  our  European  and  other
international  operations  combined  with a weakening  U.S.  economy.  No single
customer  accounted for 10% or more of our revenues for the years ended June 30,
2002 and 2001.

License revenues are difficult to forecast and will be significantly  influenced
by the overall global economy and corporate spending trends.

Services and Maintenance

Revenues  from  services and  maintenance  increased 7% to $40.3 million for the
year ended June 30, 2002 from $37.6  million  for the year ended June 30,  2001.
This  resulted  from an increase of $2.7  million in  revenues  recognized  from
technical  support and  maintenance  contracts,  which entitle  customers to new
versions of our products and technical  support and  maintenance  services and a
decrease  of $0.03  million  in  revenues  from  implementation,  education  and
consulting service engagements.

Our revenues  from  services and  maintenance  represented  58% and 39% of total
revenues  for the years ended June 30, 2002 and 2001,  respectively.  We believe
that  revenues  from  services  and  maintenance  will  decrease  over time as a
percentage of total revenues,  since we believe that license  revenues will grow
faster than  services  revenues in the near to medium term.  We intend to expand
consulting services targeted at helping customers  understand more about matters
such as  effective  one-to-one  marketing  and using the  Internet  to  increase
revenues  and improve  customer  service.  We plan to continue  relying on third
parties to provide a  majority  of  implementation  services  to our  customers,
rather than providing those services directly.

COST OF REVENUES

Our cost of license  revenues  primarily  consists of production,  packaging and
distribution of solutions and related documentation, as well as royalty fees due
to third  parties  for  integrated  technology.  Our cost of  services  revenues
includes  salaries  and related  expenses  for our  implementation,  consulting,
support and  maintenance,  and  education  organizations  and an  allocation  of
facilities, communications and depreciation expenses.

Total cost of revenues decreased 2% to $24.3 million for the year ended June 30,
2002 from $24.8 million for the year ended June 30, 2001.

License

Cost of revenues from licenses  consists of costs  relating to the packaging and
distribution of solutions,  related documentation and other production costs and
royalty fees paid for incorporation of third-party solutions into our solutions.

Cost of revenues from licenses  decreased 49% to $2.0 million for the year ended
June 30, 2002 from $3.8 million for the year ended June 30,  2001.  The decrease
is due  primarily  to a 50%  decrease in license  sales.  Cost of revenues  from
licenses as a  percentage  of revenues  from  licenses was 7% for the year ended
June 30, 2002 and 6% for the year ended June 30,  2001.  We expect that the cost
of  licenses  as  a  percentage   of  revenue  from   licenses  will  remain  at
approximately the same levels as in prior periods.

Services and Maintenance

Cost of revenues from services and  maintenance  consists of personnel and other
expenses  relating to the cost of providing  maintenance  and customer  support,
education  and  consulting   services.   Cost  of  revenues  from  services  and
maintenance  will vary  depending  on the mix of  services  we  provide  between
support and  maintenance,  education,  implementation  and consulting  services.
Gross profit margins are higher for support and  maintenance  services than they
are for education and  consulting  services.  Support and  maintenance  services
involve the  delivery of software  upgrades,  which our  customers  download and
install  themselves  and customer  support.  Education and  consulting  services
generally  require  more  involvement  by our  employees,  resulting  in  higher
compensation, travel and similar expenses.

Cost of revenues from services and maintenance increased 6% to $22.3 million for
the year ended  June 30,  2002 from  $21.0  million  for the year ended June 30,
2001.  The increase in dollar amount  resulted from a higher  average  number of
consulting,  customer  support and education  personnel during the year. Cost of
revenues from services and maintenance as a percentage of revenues from services
and  maintenance  was 55% and 56% for the years  ended  June 30,  2002 and 2001,
respectively.

We expect that cost of revenues  from services and  maintenance  will range from
45% to 55% of revenues from services and maintenance.



                                      -39-
<PAGE>

OPERATING EXPENSES

Our operating expenses are classified into three general  categories:  sales and
marketing, research and development, and general and administrative. We classify
all charges to these  operating  expense  categories  based on the nature of the
expenditures. We allocate the costs for overhead, depreciation and facilities to
each of the functional areas based on their proportional headcount.

In response to the weakening global economy, and the resulting impact on license
revenues,  we implemented a restructuring  program in the fall of fiscal 2002 in
order to bring costs in line with revised revenue forecasts.  This restructuring
initiative resulted in significantly  reduced operating costs in the second half
of the year,  as  compared  to the first  half.  While we expect to  continue to
closely monitor expenditures and to continue cost control initiatives, we expect
that  operating  expenses in the second half of fiscal  2002 are  indicative  of
those to be expected in the first part of fiscal 2003.

Sales and Marketing

Sales and marketing expenses consist primarily of salaries, commissions, bonuses
and benefits earned by sales and marketing  personnel,  direct expenditures such
as travel,  communication and occupancy for direct sales offices,  and marketing
expenditures related to direct mail, online marketing,  trade shows, advertising
and promotion.

Sales and marketing  expenses  decreased 19% to $41.4 million for the year ended
June 30, 2002 from $51.2 million for the year ended June 30, 2001.  The decrease
in dollar amounts is the result of a reduction in sales and marketing  employees
from 250 to 165 and a 27% decrease in marketing program  expenditures  following
the implementation of our restructuring plans.  Commissions decreased 32% due to
lower sales.  Sales and  marketing  expenses  increased as a percentage of total
revenues  to 59% in the year ended June 30, 2002 from 54% in the year ended June
30, 2001. This increase of sales and marketing expenses as a percentage of total
revenues resulted from lower revenues for the year ended June 30, 2002.

We expect  that  sales and  marketing  expenditures,  as a  percentage  of total
revenues, will decrease in fiscal 2003, as compared to fiscal 2002.

Research and Development

Research and development  expenses  include costs  associated with new products,
enhancements of existing products and quality  assurance  activities and consist
primarily of salaries,  benefits and equipment for software  engineers,  quality
assurance personnel,  program managers, product managers,  technical writers and
outside  contractors  used to augment  the  research  and  development  efforts.
Software  development costs incurred prior to the establishment of technological
feasibility  are included in research and development  costs as incurred.  Since
license revenues from our solutions are not recognized until after technological
feasibility has been established,  software  development costs are not generally
expensed  in the  same  period  in  which  license  revenues  for the  developed
solutions are recognized. There are no software development costs capitalized on
our balance sheet.

Research and  development  expenses  decreased 10% to $17.0 million for the year
ended June 30,  2002 from $18.8  million for the year ended June 30,  2001.  The
decrease is the result of a reduction in employees and contract labor  following
the implementation of our restructuring plans. Research and development expenses
were 24% and 20% of total  revenues  for the years ended June 30, 2002 and 2001,
respectively.  We believe that R&D  activities  are  imperative to our strategic
plans. We may increase the level of R&D expenditures,  in absolute  dollars,  in
order to expand our product line and ensure that our products remain competitive
in the marketplace.

General and Administrative

General and administrative  expenses consist primarily of salaries and occupancy
costs  for  executive,   finance,  and  administrative  personnel.  General  and
administrative  expenses also include legal and other  professional fees and bad
debt expense.

General and administrative expenses decreased 6.0% to $12.8 million for the year
ended June 30, 2002 from $13.6 million for the year ended June 30, 2001. General
and  administrative  expenses were 18% and 14% of total revenues,  respectively,
for the same  periods.  The  decrease  is a result  of a  reduction  in  general
administration  employees  from 94 to 86  offset  by an  increase  in bad  debts
expense.  The total bad debt  expense was $5.5  million and $3.3 million for the
years ended June 30, 2002 and 2001.  The increase in bad debt expense was due to
the  fact  that we  experienced  a delay  in  payments  from  certain  customers
resulting  from a weakening in the global economy in the final quarter of fiscal
2001 and throughout fiscal 2002. We have recently  tightened our credit policies
and procedures,  however unanticipated charges may be incurred in future periods
if economic  conditions or the credit  quality of individual  customers  further
deteriorate.

Over the next year we expect general and administrative  expenses to decrease as
a percentage of revenues as compared to fiscal 2002.



                                      -40-
<PAGE>

Restructuring Costs and Other Charges

In light of the significant  downturn in the North American and global economies
and  the  related  impact  on  corporate   capital   spending,   we  implemented
restructuring  plans in the second quarter of fiscal 2002 in order to streamline
our operations and align our cost structure with revised  revenue  expectations.
We adjusted  our  restructuring  plan  during the year to reflect the  continued
deterioration in the industry and economic environment.

In connection with our restructuring plans, we recorded charges of $53.6 million
related to both  restructuring  activities and write-downs of intangible assets.
These  charges  included  costs  of  $20.6  million  associated  with  workforce
reductions,   consolidation  of  excess  facilities,  contract  settlements  and
tangible asset impairments. These charges also included $33.0 million related to
the impairment of previously  recorded  goodwill and other purchased  intangible
assets.

Employee  severance and related benefit costs for  approximately  200 terminated
employees  totaled  approximately  $3.8  million.  The  workforce  reduction was
primarily  in the United  States,  Canada and the United  Kingdom  and  extended
across all geographical segments and business units. As at June 30, 2002, we had
made cash  payments to  terminated  employees  of $3.5  million.  The  remaining
obligations will be paid in the first half of fiscal 2003.

We incurred  non-cash  charges of $5.8 million related to asset  impairments for
certain capital assets that were either  abandoned  during the year or for which
the resulting estimated future reduced cash flows were insufficient to cover the
carrying  amounts of the related  assets.  The  impairment  of these  assets was
directly related the restructuring initiatives implemented during the year.

Charges of $5.7 million were incurred for remaining  lease  commitments,  net of
expected  sublease income,  and other costs related to facilities made redundant
as a result  of the  workforce  reduction  and the  discontinuance  of  previous
expansion plans.  Redundant  facilities  included certain corporate  facilities,
sales offices and research and development  centers in North America and Europe.
As at June 30, 2002, we had paid $1.3 million associated with these charges, and
the remaining obligations, which are comprised of future lease commitments, will
be paid over the respective lease terms through to June 2007. The charges may be
increased  in future  periods  if  further  consolidations  are  required  or if
sublease income is less than expected.

We recorded  charges of $5.3 million for  contract  settlement  costs  including
penalties  expected to be incurred due to our withdrawal  from certain  purchase
and partner contracts and for various  unrecoverable prepaid expenses related to
future  services  forfeited as a direct  result of the  restructuring.  The cash
portion of these charges  totaled $2.4  million,  of which $1.7 million was paid
prior to June 30, 2002.  The remaining cash portion will be paid in fiscal 2003.
If  additional  contracts  are  cancelled in future  periods,  or if  additional
unforeseen costs are incurred in respect of current  contracts,  this charge may
increase.

As part of our review of financial  results during the year ended June 30, 2002,
we performed an impairment  assessment  of  identifiable  intangible  assets and
goodwill  recorded in  connection  with our past  acquisitions.  The  impairment
assessment was performed due to changes in overall economic conditions that have
negatively  impacted our revenues and  forecasted  revenue  growth  rates.  As a
result,  we recorded an impairment  charge of $33.0  million to reduce  goodwill
associated with  acquisitions  and other purchased  intangibles to its estimated
fair  value.   This  impairment   charge  was  primarily   associated  with  the
acquisitions  of Exactium Ltd. and Digital  Conversations  Inc.  (formerly Simba
Technologies  Inc.),  Software  Spectrum  CRM,  Inc.  and Project  One  Business
Technologies Inc.

To determine the impairment  loss for goodwill,  we determined the fair value of
our recorded  intangible  asests using a business  enterprise  methodology  that
included a terminal value assigned to the related entities.  This value was then
compared to the carrying  value,  and if less,  the difference  represented  the
impairment to be recorded.  The assumptions supporting the estimated future cash
flows,  including the  estimated  terminal  values,  reflect  management's  best
estimates.  It is possible that the estimates  and  assumptions  used under this
assessment may change in the short term,  resulting in the need to further write
down the goodwill and other long-lived assets. In addition,  it is possible that
we may have additional reductions in goodwill in future periods.

Our potential for future profitability depends on our ability to align costs and
expenses to expected  revenues.  If general  economic  and  business  conditions
continue to soften,  or if the demand for our products or customer  relationship
management  products and services


                                      -41-
<PAGE>

in general is less than we forecast,  or if we are unable to maintain  costs and
expenses  within  our  targeted  range,  we may incur  additional  restructuring
charges in subsequent periods.

Amortization of Goodwill

Amortization  of goodwill was $16.2  million in the year ended June 30, 2002 and
$23.1  million in the year ended June 30,  2001.  The decrease  resulted  from a
$33.0 million  charge  recorded in the quarter  ended  December 31, 2001 for the
impairment of goodwill and other purchased  intangible  assets.  Amortization of
goodwill  for the year ended June 30,  2002 is  comprised  of  amortization  for
additions to goodwill for  acquisitions  which  totaled  $15.1 million and $58.1
million for fiscal 2001 and 2000, respectively.

Included in  goodwill  is $2.1  million in  additional  consideration,  of which
$200,000 was paid during the year ended June 30, 2002, in  connection  with earn
out amounts due to former principals of Project One.

In July 2001,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting Standard (SFAS) No. 141, "Business  Combinations" and SFAS
No.142,  "Goodwill  and Other  Intangible  Assets".  SFAS No. 141  addresses the
initial  recognition  and  measurement of goodwill and other  intangible  assets
acquired  in a business  combination  and SFAS No.  142  addresses  the  initial
recognition and measurement of intangible  assets acquired outside of a business
combination whether acquired individually or with a group of other assets. These
standards require all future business combinations to be accounted for using the
purchase method of accounting.  Goodwill will no longer be amortized but instead
will be subject to impairment  tests at least annually.  We adopted SFAS No. 141
as of July 1, 2001,  although it has not had a material  effect on our financial
position,  results of operations  and cash flows.  We are required to adopt SFAS
No. 142 on a  prospective  basis as of July 1, 2002. We will complete an initial
goodwill impairment  assessment in 2003 to determine if a transition  impairment
charge should be recognized under SFAS No. 142.

INTEREST AND OTHER INCOME

Interest and other income consists of earnings on cash and cash  equivalents and
short-term  investments  net of interest  expense,  foreign  exchange  gains and
losses and gains and losses on  investments.  Interest and other income was $1.3
million  and  $3.3  million  for  the  years  ended  June  30,  2002  and  2001,
respectively.  The decrease of $2.0 million  during the year ended June 30, 2002
was due primarily to our lower average cash and cash  equivalents and short-term
investments  balances held during the year,  combined with lower  interest rates
earned on invested cash  balances.  Interest and other income for the year ended
June 30, 2002 included foreign  exchange gains of $154,000  compared to gains of
$65,000 for the year ended June 30, 2001.  The other  components of interest and
other income were not material for the periods presented.

IMPAIRMENT OF INVESTMENTS

During the fiscal year ended June 30, 2002, we incurred a charge of $1.2 million
related to an other than temporary impairment in the value of our investments in
a private  company and a public  company.  Similar  charges were not incurred in
fiscal 2001.

INCOME TAXES

The  provision  for income  taxes was  $386,000 and $503,000 for the years ended
June 30, 2002 and 2001, respectively. These income tax amounts were attributable
to our  operations  in the United  States,  the United  Kingdom and France.  The
provisions  for taxes for the year  ended June 30,  2001 was offset by  $470,000
related to Canadian research and development tax incentives  received during the
years ended June 30, 2001.


YEARS ENDED JUNE 30, 2001 AND 2000

REVENUES

Total  revenues  increased 80% to $96.2 million for the year ended June 30, 2001
from $53.6 million for the year ended June 30, 2000.

Licenses

Revenues  from  licenses  increased 57% to $58.5 million for the year ended June
30, 2001 from $37.4 million for the year ended June 30, 2000.

Our revenues  from  licenses  increased due to sale of licenses to new customers
and to follow-on sales to existing customers.  These increases were attributable
to increased market  acceptance of our solutions and increased sales as a result
of our  expansion of our direct and indirect  channels of  distribution  both in
North America and internationally. In addition, we believe that the availability
of



                                      -42-
<PAGE>

new features  added to the Pivotal CRM Suite has increased  revenues as this has
extended the overall functionality of our solutions by permitting  organizations
to collaborate with customers and partners over the Internet.

Revenues from licenses  represented  61% and 70% of total revenues for the years
ended June 30, 2001 and 2000,  respectively.  License  revenues  decreased  as a
percentage  of  total  revenues  primarily  due to  growth  in our  professional
services business to meet the demand for  implementation of our products.  North
American license revenues accounted for 67% and 72% of total license revenues in
the years  ended June 30,  2001 and 2000,  respectively.  International  license
revenues  increased as a percentage of total revenues as demand for our products
increased  as we  expanded  our  European  and  other  international  operations
combined with a weakening  U.S.  economy.  In late fiscal 2001 and during fiscal
2002,  the buying  patters  of our  potential  customers  changed as a result of
deteriorating economic conditions in the U.S. and internationally,  resulting in
a sharp  decrease in license  revenues in the fourth  quarter of fiscal 2001. No
single  customer  accounted  for 10% or more of our revenues for the years ended
June 30, 2001 and 2000.

Services and Maintenance

Revenues from services and  maintenance  increased 133% to $37.6 million for the
year ended June 30, 2001 from $16.2  million  for the year ended June 30,  2000.
This  resulted  from an increase  of $9.9  million in  revenues  from  technical
support and maintenance  contracts,  which entitles the customer to new versions
of the product and to technical support and maintenance services and an increase
of $11.4  million in revenues  from  implementation,  education  and  consulting
service engagements.

Our revenues  from  services and  maintenance  represented  39% and 30% of total
revenues for the years ended June 30, 2001 and 2000, respectively.

COST OF REVENUES

Total cost of revenues  increased  128% to $24.8 million for the year ended June
30, 2001 from $10.9 million for the year ended June 30, 2000.

Licenses

Cost of revenues from licenses  increased 77% to $3.8 million for the year ended
June 30, 2001 from $2.1 million for the year ended June 30,  2000.  The increase
is due primarily to increased costs for third-party  technology  integrated with
our  solutions.  Cost of revenues from licenses as a percentage of revenues from
licenses was 6% for each of the years ended June 30, 2001 and 2000.

Services and Maintenance

Cost of revenues from services and maintenance increased 140% to $21 million for
the year ended June 30, 2001 from $8.8 million for the year ended June 30, 2000.
The increase in dollar amount  resulted from the hiring of consulting,  customer
support and education  personnel to support our growing  customer base.  Cost of
revenues from services and maintenance as a percentage of revenues from services
and  maintenance  was 56% and 54% for the years  ended  June 30,  2001 and 2000,
respectively.

OPERATING EXPENSES

Sales and Marketing

Sales and marketing  expenses  increased 64% to $51.2 million for the year ended
June 30, 2001 from $31.2 million for the year ended June 30, 2000.  The increase
in dollar amounts  reflects the expansion of our  international  sales capacity,
which  required an increase in the number of sales and marketing  professionals.
Sales and marketing  expenses decreased as a percentage of total revenues to 54%
in the year ended June 30, 2001 from 59% in the year ended June 30,  2000.  This
decrease of sales and  marketing  expenses  as a  percentage  of total  revenues
resulted from the improved productivity of our sales and marketing personnel and
programs.

Research and Development

Research and development  expenses  increased 111% to $18.8 million for the year
ended June 30,  2001 from $8.9  million  for the year ended June 30,  2000.  The
increase  was due to the  increase  in the number of  research  and  development
employees.  Research and development expenses were 20% and 17% of total revenues
for the years ended June 30, 2001 and 2000, respectively.

General and Administrative

General and administrative expenses increased 224% to $13.6 million for the year
ended June 30, 2001 from $4.2 million for the year ended June 30, 2000.  General
and administrative expenses were 14% and 8% of total revenues, respectively, for
the same  periods.  The increase of $9.4  million in general and  administrative
expenses  included  $4.2  million of  additional  charges  which  related to the
impairment  of  long-lived  assets  and an  additional  provision  for  doubtful
accounts.  The remaining $5.2 million increase in the general



                                      -43-
<PAGE>

and  administrative  expenses during the year ended June 30, 2001 relates to the
hiring of additional  personnel and the implementation of internal financial and
administrative systems.

The impairment of long-lived  assets of $0.9 million  relates to assets which we
will no longer be using as we are currently re-configuring our business systems.
The total bad debt  expense  was $3.3  million  for the year ended June 30, 2001
which  included an additional  provision  for doubtful  accounts of $1.7 million
during the fourth  quarter ended June 30, 2001.  This  additional  provision was
made because we are experiencing delay in payments from certain customers due to
a weakening in the North American economy.

Amortization of Goodwill

Amortization of goodwill was $23.1 million in the year ended June 30, 2001. This
amount  is  comprised  of a full  year of  amortization  and a  partial  year of
amortization  for  additions to goodwill for  acquisitions  which  totaled $15.1
million and $58.1  million for fiscal  2001 and 2000  respectively.  Included in
goodwill is $239,000 in additional consideration paid based on the net after-tax
earnings of Transitif and license  revenues  received by Transitif  from sale of
licenses for our products. Amortization of goodwill totaling $1.4 million in the
year ended June 30, 2000,  related to goodwill of arising from the  acquisitions
of Transitif and Exactium.

INTEREST AND OTHER INCOME

Interest and other income consists of earnings on cash and cash  equivalents and
short term  investments net of interest  expense and foreign  exchange gains and
losses.  Interest  and other  income was $3.3  million and $2.2  million for the
years ended June 30, 2001 and 2000,  respectively.  The increase of $1.1 million
during the year ended June 30,  2001 was due  primarily  to our higher  cash and
cash  equivalents  and short-term  investments.  This was a result of the equity
financing  completed in November  2000,  which  generated  $51.8  million net of
expenses and brokers  commissions.  Interest and other income for the year ended
June 30, 2001 included  foreign  exchange gains of $65,000 compared to losses of
$168,000 for the year ended June 30, 2000. The other  components of interest and
other income were not material for the periods presented.

INCOME TAXES

The  provision  for income  taxes was  $503,000 and $557,000 for the years ended
June 30, 2001 and 2000, respectively. These income tax amounts were attributable
to our operations in the United  States,  the United Kingdom and France and were
offset by $470,000 and $127,000 related to Canadian research and development tax
incentives received during the years ended June 30, 2001 and 2000 respectively.

QUARTERLY RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 2002 AND 2001

The following tables present our unaudited  quarterly results of operations both
in absolute  dollars  and on  percentage  of revenue  basis for each of our last
eight quarters. This data has been derived from unaudited consolidated financial
statements  that have been  prepared  on the same  basis as the  annual  audited
consolidated  financial  statements  and,  in our  opinion,  include  all normal
recurring  adjustments  necessary for the fair presentation of such information.
These unaudited  quarterly results should be read in conjunction with our annual
consolidated financial statements.


                                      -44-
<PAGE>


<TABLE>
                                                                        Three months ended
-------------------------------------------------------------------------------------------------------------------------------
(all amounts in thousands)          June 30,    Mar. 31,    Dec. 31,    Sept. 30,   June 30,    Mar. 31,   Dec. 31,  Sept. 30,
                                      2002        2002        2001        2001        2001        2001      2000       2000
-------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>         <C>         <C>          <C>        <C>         <C>        <C>        <C>
REVENUES:
     License                       $  8,849    $  7,510    $  6,870     $  6,053   $ 12,028    $ 16,368   $ 16,346   $ 13,768
     Services and maintenance        10,223      10,206       9,828       10,077     10,216      10,271      9,705      7,452
-------------------------------------------------------------------------------------------------------------------------------
         Total revenues              19,072      17,716      16,698       16,130     22,244      26,639     26,051     21,220
-------------------------------------------------------------------------------------------------------------------------------
COST OF REVENUES:
     License                            522         385         557          492        946       1,009        979        866
     Services and maintenance         5,443       5,025       5,895        5,968      6,108       5,591      5,299      4,032
-------------------------------------------------------------------------------------------------------------------------------
         Total cost of revenues       5,965       5,410       6,452        6,460      7,054       6,600      6,278      4,898
-------------------------------------------------------------------------------------------------------------------------------
Gross profit                         13,107      12,306      10,246        9,670     15,190      20,039     19,773     16,322
-------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
     Sales and marketing              8,803       8,734      10,476       13,404     14,129      12,689     12,914     11,498
     Research and development         3,720       3,636       4,660        4,947      5,228       5,096      4,509      3,917
     General and administrative       2,774       2,060       2,780        5,206      6,904       2,787      2,100      1,776
     Restructuring costs and          2,147          --      49,504        1,925         --          --         --         --
     other charges
     Amortization of goodwill         1,594       1,593       6,131        6,839      6,594       6,068      5,405      4,995
-------------------------------------------------------------------------------------------------------------------------------
         Total operating expenses    19,038      16,023      73,551       32,321     32,855      26,640     24,928     22,186
-------------------------------------------------------------------------------------------------------------------------------
Loss from operations                 (5,931)     (3,717)    (63,305)     (22,651)   (17,665)     (6,601)    (5,155)    (5,864)
Other income (expenses)
     Interest and other income          245         345         481          218      1,352         994        644        343
     Impairment of investments       (1,244)         --          --           --         --          --         --         --
-------------------------------------------------------------------------------------------------------------------------------
                                       (999)        345         481          218      1,352         994        644        343
-------------------------------------------------------------------------------------------------------------------------------
Loss before income taxes             (6,930)     (3,372)    (62,824)     (22,433)   (16,313)     (5,607)    (4,511)    (5,521)

Income tax expense (recovery)            60          (8)        180          154        344          56        170        (67)
-------------------------------------------------------------------------------------------------------------------------------
Net loss                           $ (6,990)   $ (3,364)   $(63,004)    $(22,587)  $(16,657)   $ (5,663)  $ (4,681)  $ (5,454)
===============================================================================================================================
</TABLE>


                                      -45-
<PAGE>

<TABLE>
                                                                        Three months ended
-------------------------------------------------------------------------------------------------------------------------------
(all amounts in thousands)          June 30,    Mar. 31,    Dec. 31,    Sept. 30,   June 30,    Mar. 31,   Dec. 31,  Sept. 30,
                                      2002        2002        2001        2001        2001        2001      2000       2000
-------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>         <C>         <C>          <C>        <C>         <C>        <C>        <C>
REVENUES:
  License                              46%         42%         41%         38%         54%         62%        63%        65%
  Services and maintenance             54%         58%         59%         62%         46%         38%        37%        35%
-------------------------------------------------------------------------------------------------------------------------------
     Total revenues                   100%        100%        100%        100%        100%        100%       100%       100%
-------------------------------------------------------------------------------------------------------------------------------
COST OF REVENUES:
  License                               3%          2%          3%          3%          4%          4%         4%         4%
  Services and maintenance             28%         29%         36%         37%         28%         21%        20%        19%
-------------------------------------------------------------------------------------------------------------------------------
     Total cost of revenues            31%         31%         39%         40%         32%         25%        24%        23%
-------------------------------------------------------------------------------------------------------------------------------
Gross profit                           69%         69%         61%         60%         68%         75%        76%        77%
-------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
  Sales and marketing                  46%         49%         63%         83%         63%         48%        50%        54%
  Research and development             20%         21%         28%         31%         23%         19%        17%        18%
  General and administrative           15%         12%         17%         32%         31%         10%         8%         8%
  Restructuring costs and other        11%          -         296%         12%
  charges
  Amortization of goodwill              8%          8%         36%         42%         30%         23%        21%        25%
-------------------------------------------------------------------------------------------------------------------------------
     Total operating expenses         100%         90%        440%       200%        147%        100%        96%       105%
-------------------------------------------------------------------------------------------------------------------------------
Loss from operations                  (31%)       (21%)      (379%)      (140%)       (79%)       (25%)      (20%)      (28%)

Other income (expenses)
  Interest and other income             1%         2%          3%          1%          6%          4%         3%         2%
  Impairment of investments            (6%)         -           -           -           -           -          -          -
                                     ----------------------------------------------------------------------------------------------
                                       (5%)         2%          3%          1%          6%          4%         3%         2%
                                     ----------------------------------------------------------------------------------------------
Loss before income taxes              (36%)       (19%)      (376%)      (139%)       (73%)       (21%)      (17%)      (26%)

Income taxes                            1%         -           1%          1%          2%          -          1%         -
-------------------------------------------------------------------------------------------------------------------------------
Net Loss                              (37%)       (19%)      (377%)      (140%)       (75%)       (21%)      (18%)      (26%)
===================================================================================================================================
</TABLE>



                                      -46-
<PAGE>

For the year ended June 30, 2002 we experienced  an increase in revenues  during
our second,  third, and fourth fiscal  quarters,  which we believe was primarily
related to increased license sales to new customers,  follow on license sales to
existing customers, and an increased number of technical support and maintenance
contracts  due to a growth in our  customer  base.  We believe  the  decrease in
revenue in the quarters  ended June 30, 2001 and  September 30, 2001 were due to
the economic slowdown and related reluctance of companies to acquire significant
software and systems during this time. In addition,  a pattern of reduced buying
by  European  customers  during July and August has  resulted in lower  European
license revenues in the quarters ended September 30.

The  decrease in operating  expenses,  excluding  restructuring  costs and other
charges,  beginning  in the  quarter  ended  December  31, 2001 is a result of a
reduction  in  employees  and  marketing  program  expenditures   following  the
implementation  of our  restructuring  plans  as  well  as  increased  operating
efficiencies  and  decreased  commissions  due to lower  sales.  These costs are
expected to remain  approximately  the same in the first quarter of fiscal 2003.
We will  continue  to examine  the level of sales and  marketing  costs based on
revenue projections.

Our quarterly  operating  results have fluctuated  significantly in the past and
will  continue  to  fluctuate  in the future as a result of a number of factors,
many of which are outside of our control.  As a result of our limited  operating
history,  recent  acquisitions and  restructuring,  we cannot forecast operating
expenses based on historical results. Accordingly, we base our anticipated level
of expense in part on future revenue projections. Most of our expenses are fixed
in the short-term and we may not be able to quickly reduce  spending if revenues
are lower than we have projected. Our ability to forecast our quarterly revenues
accurately is limited given our limited operating  history,  length of the sales
cycle of our solutions and other uncertainties in our business. If revenues in a
particular  quarter do not meet  projections,  our net losses in a given quarter
would  be  greater   than   expected.   As  a  result,   we  believe   that  our
quarter-to-quarter  comparisons  of our  operating  results are not  necessarily
meaningful.  Investors  should  not rely on the  results  of one  quarter  as an
indication of future performance.

LIQUIDITY AND CAPITAL RESOURCES

At June 30,  2002,  we had $20.3  million  in cash and cash  equivalents,  $21.0
million in short-term investments and $23.6 million in total working capital.

Our cash and cash  equivalents  and  short-term  investments  decreased to $41.3
million as of June 30, 2002 from $68.7 million as of June 30, 2001.  Our working
capital  decreased to $23.6  million at June 30, 2002 from $58.4 million at June
30, 2001.

Net cash used in operating activities for the year ended June 30, 2002 was $24.3
million  compared  to net cash used of $4.2  million in the same period in 2001.
This increase was primarily due to the higher net loss incurred  during the year
ended June 30, 2002, which included $11.8 million of cash related  restructuring
charges.

Net cash  provided by investing  activities  was $30.8  million  during the year
ended June 30, 2002 and net cash used in investing  activities was $43.5 million
for the year  ended  June 30,  2001.  During  the year  ended  June 30,  2002 we
received  proceeds of $34.5  million  from the sale and  maturity of  short-term
investments  and proceeds of $1.3 million from the sale and leaseback of assets,
whereas  during  the year  ended June 30,  2001 we used  $24.7  million  for net
purchases of short-term investments.  Capital expenditures totalled $1.2 million
and $6.8  million  for the years  ended  June 30,  2002 and 2001,  respectively.
Long-term investments and other assets totaled $3.8 million and $6.3 million for
the years ended June 30, 2002 and 2001, respectively. During the year ended June
30, 2002,  there were no  acquisitions.  During the year ended June 30, 2001, we
used $5.7 million  (net of cash  acquired) on  acquisitions  including  Ionysys,
Project One, Software Spectrum, and Inform.

Cash provided by financing activities was $0.6 million and $56.2 million for the
years ended June 30, 2002 and 2001, respectively. Net cash provided by financing
activities for the year ended June 30, 2001 resulted primarily from the issuance
of common shares.

As of June 30, 2002, our future fixed  commitments  for cash payments  primarily
related to obligations  under  non-cancelable  operating and capital leases.  We
lease facilities under non-cancelable operating leases expiring between 2002 and
2012 and certain  equipment  under  non-cancelable  operating and capital leases
expiring  between 2002 and 2004.  Future minimum lease payments and other future
fixed commitments for the years ending June 30 are as follows:


                                      -47-
<PAGE>

<TABLE>
                                                                               Years ending June 30,
                                                                                    (thousands)

                                             Total          2003        2004         2005       2006       2007    2008 - 2012
                                           --------       --------    --------     --------   --------   --------  -----------
<S>                                       <C>              <C>         <C>          <C>        <C>        <C>      <C>
Capital leases and long term debt          $    775           341         411           23          -          -             -
Restructuring liabilities                     5,378         2,296         973          923        684        502             -
Operating leases (excluding amounts
  charged to restructuring)                  38,505         7,129       5,607        4,075      3,569      2,889        15,236
Licencing commitments                         1,000         1,000           -            -          -          -             -
                                           --------       --------    --------     --------   --------   --------  -----------
Total cash obligations                     $ 45,658        10,766       6,991        5,021      4,253      3,391        15,236
</TABLE>


Our  principal  source  of  liquidity  at  June  30,  2002  was our  cash,  cash
equivalents  and  short-term  investments  of  $41.3  million.  We have a credit
agreement with a Canadian  chartered bank,  which includes a revolving letter of
credit facility of $5.0 million,  bearing interest at the bank's prime rate plus
1% per  year,  secured  by a  charge  on all our  current  and  future  personal
property.  As of June 30, 2002 and 2001, letters of credit totaling $4.0 million
and $2.5  million,  respectively,  were  outstanding  to secure  facilities  and
equipment lease obligations.

Our accounts  receivable  at June 30, 2002,  were 53 days of sales  outstanding,
which is below  our  target  range of 75 to 85 days.  Days of sales  outstanding
decreased  because  of  our  improved   collection   procedures,   a  more  even
distribution  of sales during the fourth quarter,  and the additional  provision
for doubtful accounts.

We expect to incur capital expenditures of $3 to $4 million in the first half of
fiscal 2003, largely due to our move to new Vancouver head office facilities, as
well as various upgrades to our computer systems infrastructure.

We believe that the total  amount of cash and cash  equivalents  and  short-term
investments,  along with the credit  facilities,  will be sufficient to meet our
anticipated  cash needs for working  capital or other  purposes at least for the
next 18 months. Thereafter, depending on the development of our business, we may
need to raise  additional  cash for working  capital or other  expenses.  In the
interim,  however,  lower than  anticipated  revenues,  higher than  anticipated
expenses,  or opportunities for acquisitions or other business  initiatives that
require  significant  cash  commitments,  or  other  unanticipated  problems  or
expenses  that could result in a  requirement  for  additional  cash before that
time. If we need to raise additional cash,  financing may not be available to us
on favorable terms, or at all.


Recent Accounting Pronouncements

In July 2001, the Financial  Accounting  Standards  Board (FASB) issued SFAS No.
141,  Business  Combinations,  and SFAS No. 142,  Goodwill and Other  Intangible
Assets.  SFAS  No.141  addresses  the initial  recognition  and  measurement  of
intangible assets acquired in a business  combination and SFAS No. 142 addresses
the subsequent recognition and measurement of intangible assets acquired outside
of a business  combination  whether,  acquired  individually  or with a group of
other assets.  These standards  require all future  business  combinations to be
accounted for using the purchase  method of accounting.  Goodwill will no longer
be amortized but instead will be subject to impairment tests at least annually.

We adopted  SFAS No. 141 as of July 1, 2001.  We are  required to adopt SFAS No.
142 on a prospective  basis as of July 1, 2002. The adoption of SFAS No. 141 did
not have a material effect on our financial position,  results of operations and
cash flows in 2003 and  subsequent  years.  Commencing  July 1, 2002, we will no
longer amortize goodwill pursuant to SFAS No. 142. Goodwill amortization for the
year ended June 30, 2002 was $16,157.  Unamortized  goodwill as of June 30, 2002
was $7,632. We will complete an initial goodwill impairment assessment in fiscal
2003 to determine if a transition  impairment  charge should be recognized under
SFAS No. 142.

In October 2001, the FASB issued SFAS No. 144  "Accounting for the Impairment or
Disposal  of  Long-Lived  Assets."  This  statement  supersedes  SFAS  No.  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." Although  retaining  many of the  fundamental  recognition  and
measurement  provisions  of SFAS 121,  the new rules  significantly  change



                                      -48-
<PAGE>

the  criteria  that would have to be met to classify an asset as  held-for-sale.
The statement also supersedes certain provisions of Accounting  Principles Board
Opinion No. 30,  "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and  Transactions,"  and will require expected future operating
losses from discontinued  operations to be displayed in discontinued  operations
in the  period(s)  in  which  the  losses  are  incurred  rather  than as of the
measurement  date, as presently  required.  As required by SFAS No. 144, we will
adopt this new statement on July 1, 2002. We are  evaluating  this statement but
do not expect  that it will have a material  impact on our  financial  position,
results of operations, or cash flows.

On  January 1, 2002,  we  adopted  Topic  D-103,  which  requires  that  certain
out-of-pocket  expenses  re-billed to customers be recorded as revenue versus an
offset to the related expense. Prior to the adoption of Topic D-103, we recorded
billed out-of-pocket  expenses as an offset to the related expense.  Comparative
financial  statements  for prior periods have been conformed to the current year
presentation.  This change had no effect on  operating  income or net income for
any period presented.

In June 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or  Disposal  Activities"  ("SFAS No.  146").  SFAS No. 146  addresses
significant  issues  regarding the  recognition,  measurement,  and reporting of
costs  associated  with exit and disposal  activities,  including  restructuring
activities.  SFAS No. 146 also addresses recognition of certain costs related to
terminating  a  contract  that is not a  capital  lease,  costs  to  consolidate
facilities or relocate employees, and termination benefits provided to employees
that  are  involuntarily  terminated  under  the  terms  of a  one-time  benefit
arrangement  that  is  not  an  ongoing  benefit  arrangement  or an  individual
deferred-compensation  contract.  SFAS No. 146 is effective for exit or disposal
activities  that are  initiated  after  December  31,  2002.  The  impact of our
financial  position and results of operations from adopting SFAS No. 146 has not
been determined.


AUDIT COMMITTEE

Pivotal has an Audit  Committee of the Board of Directors,  the charter of which
is to oversee the  activities  of management  and our external  auditors as they
relate to the financial  reporting  process.  Currently,  the Audit Committee is
comprised of Robin  Louis,  Jeremy  Jaech,  Steven  Gordon and Howard  Gwin.  In
particular,  the  Audit  Committee's  role  includes  ensuring  that  management
properly develops and adheres to a sound system of internal  controls,  and that
our external  auditors,  through their own review,  assess the  effectiveness of
those controls and management's adherence to them.

In fulfilling their  responsibilities,  the Audit Committee  conducted  regular,
quarterly  meetings with our external  auditors.  In these  meetings,  the Audit
Committee  discussed with  management and our external  auditors the quality and
acceptability  of accounting  policies and  significant  transactions  or issues
encountered  during the period.  In addition,  the Audit  Committee met with our
external  auditors  independent  of  management to provide for  independent  and
confidential  assessment of management and the internal  controls as they relate
to the quality and  reliability of our financial  statements.  In the year ended
June 30, 2001, we adopted an Audit  Committee  Charter as required by the Nasdaq
Stock  Exchange,  Inc. in  compliance  with the Nasdaq  Stock  Exchange,  Inc.'s
Marketplace  Rules.  We are committed to  supporting  this process and the Audit
Committee in  fulfilling  their role of ensuring  the  integrity of our internal
controls and financial reporting.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to financial  market  risks,  including  fluctuations  in foreign
exchange rates and interest rates.

INTEREST RATE RISK

We invest our cash in a variety of short-term financial  instruments,  including
government bonds,  commercial paper and money market instruments.  Our portfolio
is diversified and consists primarily of investment grade securities to minimize
credit risk. These investments are typically  denominated in U.S. dollars.  Cash
balances in foreign  currencies are operating  balances and are only invested in
demand or short-term deposits of the local operating bank.

Investments  in both fixed rate and floating rate interest  earning  instruments
carry a degree of interest rate risk.  Fixed rate securities may have their fair
market  value  adversely  impacted  because of a rise in interest  rates,  while
floating rate securities may produce less income than expected if interest rates
fall. Due in part to these factors,  our future investment income may fall short
of expectations  because of changes in interest rates or we may suffer losses in
principal if forced to sell  securities that have seen a decline in market value
because of changes in interest rates.


                                      -49-
<PAGE>

Our investments are made in accordance with an investment policy approved by our
board of directors.  Under this policy, all short-term  investments must be made
in investment grade securities with original maturities of less than one year at
the time of acquisition.

We do not attempt to reduce or  eliminate  our  exposure  to interest  rate risk
through the use of derivative financial instruments due to the short-term nature
of the investments. Based on a sensitivity analysis performed on our balances as
of June 30, 2002, the fair value of our short-term  investment  portfolio  would
not be  materially  impacted  by a shift in the yield curve of plus or minus 50,
100 or 150 basis points.

OTHER INVESTMENTS

Included  in  other  assets  are  certain  investments  in  public  and  private
companies.  Our investment in two public companies are considered  available for
sale  and  are  subject  to  considerable   market  price   volatility  and  are
additionally risky due to resale  restrictions.  The investments are recorded on
the balance sheet at market value with unrealized  gains or losses reported as a
separate component of accumulated other  comprehensive  income. We may lose some
or all of our investment in those shares.  We typically do not attempt to reduce
or eliminate our market  exposure on these  securities.  A 10% adverse change in
the equity price would  result in an  approximate  $90,000  decrease in the fair
value of our marketable  equity  securities as of June 30, 2002. During the year
ended June 30, 2002, we recorded a writedown of $0.8 million related to an other
than  temporary  decline in the value of investments  in public  companies.  Our
investments  in privately  held  companies  are carried at cost less  writedowns
related to other than  temporary  declines.  These  investments  are  inherently
risky,  as they  typically are comprised of  investments  in companies  that are
still in  start-up  or  development  stages.  The  market  for their  product or
technologies  that they have under development is typically in the early stages,
and may  never  materialize.  We  could  lose  our  entire  investment  in these
companies or may incur an  impairment  charge if we determine  that the value of
these assets has been impaired. During the year ended June 30, 2002, we recorded
a charge of $0.4 million related to an impairment in the value of investments in
non-public companies.

FOREIGN CURRENCY RISK

We have  operations  in Canada and a number of  countries  outside of the United
States  and  therefore  we are  subject  to risks  typical  of an  international
business including,  but not limited to, differing economic conditions,  changes
in  political   climate,   differing  tax  structures,   other  regulations  and
restrictions  and foreign  exchange  rate  volatility.  Accordingly,  our future
results  could be  materially  adversely  affected  by changes in these or other
factors.

Our sales and  corresponding  receivables  are  substantially  in U.S.  dollars.
Through  our  operations  in Canada  and  outside  North  America,  we incur the
majority  of  our  research  and   development,   customer   support  costs  and
administrative expenses in Canadian and other local currencies.  We are exposed,
in  the  normal  course  of  business,   to  foreign  currency  risks  on  these
expenditures.  We have evaluated our exposure to these risks and have determined
that our only  significant  foreign  currency  exposure  at this  time is to the
Canadian  dollar  through  our  operations  in Canada.  At this time,  we do not
believe our exposure to other currencies is material.

On occasion,  we use forward  contracts to minimize  the risks  associated  with
transactions  originating  in Canadian  dollars.  We have not  designated  these
forward  contracts  to be hedging  instruments.  Therefore,  all gains or losses
resulting from the change in fair value of these contracts have been included in
earnings in the current period.

If we were to designate these types of forward contracts or other derivatives as
hedges in the future and such  derivatives  satisfy  the  criteria  for  hedging
instruments,  then  depending  on the nature of the  hedge,  changes in the fair
value of the  derivatives  will be offset  against  the  change in fair value of
assets,  liabilities,  or firm  commitments  recognized in earnings  (fair value
hedges) or recognized  in other  comprehensive  income until the related  hedged
item is  recognized  in earnings  (cash flow  hedges).  Any change in fair value
related  to the  ineffective  portion  of a  derivative  will be  recognized  in
earnings through periodic mark to market adjustments.

In addition to the use of foreign exchange forward  contracts noted above,  from
time to time we may also purchase  Canadian  dollars in the open market and hold
these funds in order to satisfy  forecasted  operating needs in Canadian dollars
for the next operating period, which is generally limited to six months or less.

If our actual currency  requirement in the period forecasted  differs materially
from the notional amount of our forward  contracts and/or the amount of Canadian
dollars  purchased in the open market during a period of currency  volatility or
if we do not continue to manage our exposure to foreign currency through forward
contracts or other means, we could  experience  unanticipated  foreign  currency
gains or losses.


                                      -50-
<PAGE>

Our foreign currency risk management policy subjects us to risks relating to the
creditworthiness  of the  commercial  banks  with  which we enter  into  forward
contracts.  If one of these banks cannot honor its obligations,  we may suffer a
loss. We also invest in our international operations which will likely result in
increased  future  operating  expenses  denominated  in United Kingdom and Irish
pounds, French francs, euros, German marks, Japanese yen, Australian dollars and
New Zealand dollars. Our exposure to exchange fluctuations in foreign currencies
has not been material to date and accordingly, our current foreign currency risk
management  practices do not cover foreign exchange risks related to these other
currencies.  In the future,  our exposure to foreign  currency  risks from these
other foreign currencies may increase and if not managed appropriately, we could
experience unanticipated foreign currency gains and losses.

The  purpose of our foreign  currency  risk  management  policy is to reduce the
effect of exchange rate  fluctuation  on our results of  operations.  Therefore,
while our foreign  currency  risk  management  policy may reduce our exposure to
losses  resulting from unfavorable  changes in currency  exchange rates, it also
reduces or eliminates our ability to profit from  favorable  changes in currency
exchange rates.

At June 30,  2002 and June 30,  2001,  we had no  outstanding  currency  forward
exchange  contracts.  During the year ended June 30, 2002, we recorded a foreign
exchange  gain of $154,000  compared to a gain of $65,000  during the year ended
June 30, 2001.




                                      -51-
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          INDEPENDENT AUDITORS' REPORT

To the Shareholders of
Pivotal Corporation

We  have  audited  the  accompanying  consolidated  balance  sheets  of  Pivotal
Corporation as of June 30, 2002 and 2001 and the related consolidated statements
of operations,  shareholders'  equity and cash flows for each of the three years
in the  period  ended  June 30,  2002.  Our audit also  included  the  financial
statement  schedule  listed  in the  Index  at Item  14(a).  These  consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Pivotal
Corporation as of June 30, 2002 and 2001 and the results of its operations and
its cash flows for each of the three years in the period ended June 30, 2002 in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.


/s/ Deloitte & Touche LLP

Vancouver, Canada
July 19, 2002



                                      -52-
<PAGE>



                               PIVOTAL CORPORATION
                           CONSOLIDATED BALANCE SHEETS
         (Expressed in United States dollars; all amounts in thousands)


<TABLE>
                                                                                June 30,
                                                                      ----------------------------
                                                                           2002            2001
                                                                      ----------------------------
<S>                                                                     <C>              <C>
ASSETS
Current assets:
   Cash and cash equivalents                                            $  20,322        $ 13,247
   Short-term investments                                                  20,961          55,468
   Accounts receivable                                                     11,100          25,645
   Prepaid expenses and other                                               2,546           3,656
                                                                      ----------------------------
Total current assets                                                       54,929          98,016
Property and equipment, net                                                 4,201           9,183
Goodwill, intangibles and other assets, net                                 9,515          61,244
                                                                      ----------------------------
Total assets                                                              $68,645        $168,443
                                                                      ============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable and accrued liabilities                             $  16,414        $ 25,324
   Current portion of accrued restructuring costs                           2,296               -
   Deferred revenue                                                        12,327          13,810
   Current portion of obligations under capital leases and
     long-term debt                                                           320             516
                                                                      ----------------------------
Total current liabilities                                                  31,357          39,650

Non-current portion of accrued restructuring costs                          3,082               -
Non-current portion of obligations under capital leases
  and long-term debt                                                          423             592
                                                                      ----------------------------
Total liabilities                                                          34,862          40,242

Commitments and contingencies (Note 10)

Shareholders' equity:
   Preferred shares, undesignated, no par value, authorized
     shares - 20,000 at June 30, 2002 and June 30, 2001; no
     shares issued and outstanding                                              -               -
   Common shares and additional paid-in capital, no par value,
     authorized shares - 200,000 at June 30, 2002 and
     June 30, 2001; issued and outstanding shares - 24,096 and
     23,933 June 30, 2002 and June 30, 2001, respectively                 178,084         176,728
   Deferred share-based compensation                                          (23)            (81)
   Accumulated other comprehensive loss                                       (90)           (203)
   Accumulated deficit                                                   (144,188)        (48,243)
                                                                      ----------------------------
Total shareholders' equity                                                 33,783         128,201
                                                                      ----------------------------
Total liabilities and shareholders' equity                              $  68,645        $168,443
                                                                      ============================
</TABLE>



        See accompanying Notes to the Consolidated Financial Statements.


                                      -53-
<PAGE>

                               PIVOTAL CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (Expressed in United States dollars;
                all amounts in thousands except per share data)


<TABLE>
                                                                            Years ended June 30,
                                                                  ------------------------------------
                                                                      2002         2001         2000
                                                                  ------------------------------------
<S>                                                                <C>          <C>           <C>
Revenues:
   License                                                         $ 29,282     $ 58,510      $37,384
   Services and maintenance                                          40,334       37,644       16,169
                                                                  ------------------------------------
Total revenues                                                       69,616       96,154       53,553
                                                                  ------------------------------------
Cost of revenues:
   License                                                            1,956        3,800        2,141
   Services and maintenance                                          22,331       21,030        8,761
                                                                  ------------------------------------
Total cost of revenues                                               24,287       24,830       10,902
                                                                  ------------------------------------
Gross profit                                                         45,329       71,324       42,651
                                                                  ------------------------------------
Operating expenses:
   Sales and marketing                                               41,417       51,230       31,165
   Research and development                                          16,963       18,750        8,906
   General and administrative                                        12,820       13,567        4,190
   Restructuring costs and other charges                             53,576            -            -
   Amortization of goodwill                                          16,157       23,062        1,409
   In process research and development and other charges                  -            -        6,979
                                                                  ------------------------------------
Total operating expenses                                            140,933      106,609       52,649
                                                                  ------------------------------------
Loss from operations                                                (95,604)     (35,285)      (9,998)
Other income (expenses)
   Interest and other income                                          1,289        3,333        2,193
   Impairment of investments                                         (1,244)           -            -
                                                                  ------------------------------------
                                                                         45        3,333        2,193
                                                                  ------------------------------------
Loss before income taxes                                            (95,559)     (31,952)      (7,805)
Income taxes                                                            386          503          557
                                                                  ------------------------------------
Net loss for the year                                               (95,945)    $(32,455)     $(8,362)
                                                                  ====================================
Loss per share
   Basic and diluted                                               $  (3.99)    $  (1.40)     $ (0.45)
   Pro forma basic and diluted                                            -            -      $ (0.39)

Weighted average number of shares used to
 calculate loss per share:
   Basic and diluted                                                 24,039       23,173       18,643
   Pro forma basic and diluted                                            -            -       21,339
</TABLE>



        See accompanying Notes to the Consolidated Financial Statements.


                                      -54-
<PAGE>

                               PIVOTAL CORPORATION
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
         (Expressed in United States dollars; all amounts in thousands)


<TABLE>
                                               Common Shares
                                                    and
                             Class A          Additional
                           Convertible          Paid-in        Class B                  Accumulated
                         Preferred Shares       Capital     Common Shares   Deferred        Other                      Total
                          --------------   ---------------- -------------  Share-based  Comprehensive  Accumulated  Shareholders'
                          Shares  Amount   Shares   Amount  Shares Amount Compensation      Loss         Deficit    Equity (Deficit)
                          ------  ------   ------  -------- ------ ------ ------------  -------------  -----------  ---------------
<S>                        <C>     <C>      <C>     <C>      <C>    <C>   <C>           <C>             <C>          <C>

Balance, June 30,
 1999                       2,000      83    3,454      563    477       4       (416)           -         (7,426)         (7,192)
Net loss for the
 year                           -       -        -        -      -       -          -            -         (8,362)         (8,362)
Conversion of
 Class B common
 shares into common
 shares                         -       -      477        4   (477)     (4)         -            -              -               -
Conversion of
 Class A
 preferred shares
 into common shares        (2,000)    (83)   2,000       83      -       -          -            -              -               -
Conversion of
 redeemable convertible
 preferred shares
 into common shares             -       -   10,052   17,500      -       -          -            -              -          17,500
Issuance of common
 shares on exercise
 of stock options               -       -      375      995      -       -          -            -              -             995
Issuance of common
 shares on initial
 public offering,
 net of offering costs          -       -    3,975   43,101      -       -          -            -              -          43,101
Issuance of common
 shares related to
 Employee Stock
 Purchase Plan                  -       -       69      707      -       -          -            -              -             707
Acquisitions                    -       -    1,655   49,125      -       -          -            -              -          49,125
Amortization of
share-based
 compensation                   -       -        -        -      -       -        223            -              -             223
                           ------  ------   ------  -------- ------ ------ ------------  -------------  -----------   --------------
Balance, June 30, 2000          -       -   22,057  112,078      -       -       (193)           -        (15,788)         96,097
Net loss for the year           -       -        -        -      -       -          -            -        (32,455)        (32,455)
Unrealized loss on
 available-for-sale
 investment                     -       -        -        -      -       -          -         (203)             -            (203)
                                                                                                                          ---------
Comprehensive loss                                                                                                        (32,658)
                                                                                                                          ---------
Tax benefit from employee
 stock option plans             -       -        -      876      -       -          -            -              -             876
Issuance of common shares
 on exercise of
 stock options                  -       -      506    3,109      -       -          -            -              -           3,109
Issuance of common shares
 related to Employee
Stock
 Purchase Plan                  -       -       72    1,440      -       -          -            -              -           1,440
Acquisitions                    -       -      298    7,404      -       -          -            -              -           7,404
Amortization of
share-based
 compensation                   -       -        -        -      -       -        112            -              -             112
Compensation related to
 stock options                  -       -        -       65      -       -          -            -              -              65
Issuance of common shares
 on equity financing,
 net of offering costs          -       -    1,000   51,756      -       -          -            -              -          51,756
                           ------  ------   ------  -------- ------ ------ ------------  -------------  -----------   --------------
Balance, June 30, 2001          -       -   23,933  176,728      -       -        (81)        (203)       (48,243)        128,201
Net loss for the year           -       -        -        -      -       -          -            -        (95,945)        (95,945)
Unrealized gain on
 available-for-sale
 investment                     -       -        -        -      -       -          -          113              -             113
                                                                                                                     --------------
Comprehensive loss                                                                                                        (95,832)
                                                                                                                     --------------
Tax benefit from employee
 stock option plans             -       -        -      378      -       -          -            -              -             378
Issuance of common shares
 on exercise of
 stock options                  -       -       51       76      -       -          -            -              -              76
Issuance of common shares
 related to Employee
 Stock Purchase Plan            -       -      112      902      -       -          -            -              -             902
Amortization of
share-based
 compensation                   -       -        -        -      -       -         58            -              -              58
                           ------  ------   ------  -------- ------ ------ ------------  -------------  -----------   --------------
Balance, June 30, 2002          -   $   -   24,096 $178,084      -     $ -       $(23)      $  (90)     $(144,188)        $33,783
                           ======  ======   ======  ======== ====== ====== ============  =============  ===========   ==============
</TABLE>



        See accompanying Notes to the Consolidated Financial Statements.



                                      -55-
<PAGE>


                               PIVOTAL CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
         (Expressed in United States dollars; all amounts in thousands)


<TABLE>
                                                                                         Years ended June 30,
                                                                           --------------------------------------------
                                                                               2002            2001            2000
                                                                           ------------    ------------    ------------
<S>                                                                           <C>            <C>             <C>
Cash flows from operating activities:
   Net loss for the year                                                      $(95,945)      $(32,455)       $(8,362)
   Adjustments to reconcile net loss to net cash provided
     by (used in) operating activities:
        Amortization of goodwill                                                16,157         23,062          1,409
        Depreciation                                                             4,145          4,556          2,215
        Non-cash restructuring costs                                             8,758              -              -
        In process research and development and other charges                        -              -          6,979
        Tax benefit from employee stock option plans                               378            876              -
        Impairment of goodwill and other purchased intangible assets            32,987            948              -
        Loss on disposal of other assets                                         1,244              -              -
        Amortization of deferred share-based compensation                           58            112            223
        Non-cash share-based compensation expense                                    -             65              -
        Change in operating assets and liabilities                               7,896         (1,368)         2,469
                                                                           ------------    ------------    ------------
   Net cash (used in) provided by operating activities                         (24,322)        (4,204)         4,933
                                                                           ------------    ------------    ------------

Cash flows from investing activities:
   Purchases, sales and maturities of short-term investments, net               34,507        (24,680)       (30,788)
   Purchase of property and equipment                                           (1,211)        (6,833)        (6,110)
   Proceeds from sale and leaseback of assets                                    1,277              -              -
   Purchase of long-term investments and other assets                           (3,789)        (6,276)        (2,921)
   Acquisitions (net of cash acquired)                                               -         (5,682)       (14,520)
                                                                           ------------    ------------    ------------
Net cash provided by (used in) investing activities                             30,784        (43,471)       (54,339)
                                                                           ------------    ------------    ------------

Cash flows from financing activities:
   Net proceeds from equity financing                                                -         51,756              -
   Net proceeds from initial public offering of common shares                        -              -         43,101
   Proceeds from issuance of common shares                                         978          4,550          1,701
   Repayment of obligations under capital lease                                   (365)          (118)             -
                                                                           ------------    ------------    ------------
Net cash provided by financing activities                                          613         56,188         44,802
                                                                           ------------    ------------    ------------
Net increase (decrease) in cash and cash equivalents                             7,075          8,513         (4,604)
Cash and cash equivalents, beginning of period                                  13,247          4,734          9,338
                                                                           ------------    ------------    ------------
Cash and cash equivalents, end of period                                      $ 20,322        $13,247        $ 4,734
                                                                           ============    ============    ============

Supplemental cash flow disclosure:
   Income taxes (recovered) paid                                                  $316       $   (132)       $   324
                                                                           ============    ============    ============
   Interest paid                                                                   $23       $     10        $     1
                                                                           ============    ============    ============

Supplemental non-cash investing disclosure:
   Issuance of common shares and options on acquisitions                            $-       $  7,404        $49,125
                                                                           ============    ============    ============

Supplemental non-cash financing disclosure:
   Issuance of common shares and options on acquisitions                            $-       $  7,404        $49,125
                                                                           ============    ============    ============
   Conversion of preferred shares into common shares                                $-       $      -        $17,583
                                                                           ============    ============    ============
</TABLE>



        See accompanying Notes to the Consolidated Financial Statements.



                                      -56-
<PAGE>

                               PIVOTAL CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (Expressed in United States dollars;
               all amounts in thousands except amounts per share)



1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     DESCRIPTION OF THE COMPANY

     Pivotal Corporation and its partners provide software, services and support
     that enables  medium-sized  businesses  and  divisions of large  businesses
     worldwide  to  make,   serve,   and  manage   customers   efficiently   and
     intelligently by providing customer  relationship  management  software and
     business consulting services.  Pivotal helps companies manage collaborative
     relationships  between  customers,  business partners,  and employees,  and
     guides intelligent commerce transactions across multiple channels.

     PRINCIPLES OF CONSOLIDATION

     These consolidated financial statements have been prepared by management in
     accordance  with  accounting  principles  generally  accepted in the United
     States of America  (U.S.  GAAP) and include the accounts of Pivotal and its
     wholly owned subsidiaries.  All intercompany accounts and transactions have
     been eliminated.

     REVENUE RECOGNITION

     The Company recognizes revenue in accordance with accounting  standards for
     software  companies  including  Statement  of Position No. 97-2 (SOP 97-2),
     Software  Revenue  Recognition,  as amended by SOP 98-4,  98-9, and related
     interpretations including Technical Practice Aids.

     Pivotal  generates  revenues through two sources:  (1) license revenues and
     (2)  services  and  maintenance  revenues.  License  revenues  are normally
     generated from licensing with end-users,  value-added  resellers (VARs) and
     application service providers and, to a lesser extent, through distribution
     of third party  products.  When  software  licenses are sold  indirectly to
     end-users  through  VARs,  Pivotal  recognizes  as revenue only the net fee
     payable from the reseller  upon  sell-through  to the  end-customer  by the
     reseller.   Service  revenues  are  generated  from  consulting   services,
     education services and maintenance.

     Revenues from software  license  agreements are recognized upon delivery of
     software if persuasive  evidence of an  arrangement  exists,  collection is
     probable, the fee is fixed or determinable,  and vendor-specific  objective
     evidence  exists to allocate the total fee to elements of the  arrangement.
     Vendor-specific  objective evidence is typically based on the price charged
     when an element is sold  separately,  or, in the case of an element not yet
     sold separately,  the price established by authorized management,  if it is
     probable that the price,  once  established,  will not change before market
     introduction.  Elements  included in multiple  element  arrangements  could
     consist of software  products,  upgrades,  enhancements,  customer  support
     services,  or consulting  services.  If an  acceptance  period is required,
     revenues  are  recognized  upon the earlier of customer  acceptance  or the
     expiration  of  the  acceptance  period.   Pivotal's  agreements  with  its
     customers and resellers do not contain product return rights. If the fee is
     not fixed or determinable  due to the existence of extended  payment terms,
     revenue is recognized  periodically  as payments  become due,  provided all
     other  conditions  for revenue  recognition  are met.  Pivotal's  customers
     include a number of suppliers. On occasion,  Pivotal has purchased goods or
     services for  Pivotal's  operations  from vendors at or about the same time
     Pivotal  has   licensed  its   software  to  these   organizations.   These
     transactions  are  separately  negotiated and recorded at amounts and terms
     Pivotal considers to be at arm's-length.

     Maintenance  revenues are recognized ratably over the term of the contract,
     typically  one  year.   Consulting   revenues  are  primarily   related  to
     implementation  services  performed  on a  time-and-materials  basis  under
     separate  service  arrangements  related  to the  installation  and  use of
     Pivotal's  software  products.   Revenues  from  consulting  and  education
     services  are  recognized  as  services  are  performed.  If a  transaction
     includes  both  license and service  elements,  license  fee  revenues  are
     recognized separately on shipment of the software,  provided that the above
     criteria  are met,  payment  of the  license  fee is not  dependent  on the
     performance   of  services,   the   services  are  not   essential  to  the
     functionality  of the product and the payment  terms for  licenses  are not
     subject to  acceptance  criteria.  In cases where  license fee payments are
     contingent  on  acceptance  of  services,  Pivotal  defers  recognition  of
     revenues  from  both  the  license  and  the  service  elements  until  the
     acceptance criteria are met.



                                      -57-
<PAGE>

                               PIVOTAL CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (Expressed in United States dollars;
               all amounts in thousands except amounts per share)



1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     COST OF REVENUES

     Cost of license revenues consists primarily of media, product packaging and
     shipping,  documentation  and  other  production  costs,  and  third  party
     royalties.  Cost of services and maintenance revenues consists primarily of
     salaries,  benefits and allocated  overhead  costs  related to  consulting,
     training  and global  services  personnel,  including  the cost of services
     provided by third-party consultants engaged by Pivotal.

     USE OF ESTIMATES

     The  preparation of  consolidated  financial  statements in conformity with
     generally  accepted  accounting  principles  requires  management  to  make
     estimates and  assumptions  that affect the reported  amounts of assets and
     liabilities and disclosure of contingent assets and liabilities at the date
     of the  consolidated  financial  statements,  and the  reported  amounts of
     revenues and expenses during the reporting periods. Estimates are used for,
     but not limited to, the accounting for doubtful accounts,  depreciation and
     amortization,  income taxes,  restructuring  liabilities and contingencies.
     Actual results may differ from those estimates.

     CASH AND CASH EQUIVALENTS

     Cash  equivalents  consist of highly  liquid  short-term  investments  with
     original  maturities at the date of  acquisition of 90 days or less and are
     recorded at cost.

     SHORT-TERM INVESTMENTS

     Under  Financial  Accounting  Standard  ("SFAS")  No. 115,  Accounting  for
     Certain  Investments in Debt and Equity Securities,  management  classifies
     investments  as  available-for-sale  or  held-to-maturity  at the  time  of
     purchase and  re-evaluates  such designation as of each balance sheet date.
     Investments  classified  as  held-to-maturity   securities  are  stated  at
     amortized cost with corresponding  premiums or discounts  amortized against
     interest income over the life of the investment.

     Marketable  equity and debt  securities not classified as  held-to-maturity
     are classified as available-for-sale and reported at fair value. Unrealized
     gains and losses on these  investments,  net of any related tax effect, are
     included in equity as a separate component of shareholders' equity.

     Short-term  investments consist of money market instruments with maturities
     of  less  than  one  year.  As  at  June  30,  2002,  Pivotal's  short-term
     investments  consisted  solely of  held-to-maturity  investments  and their
     carrying value was substantially the same as their market value.

     INVESTMENTS IN PUBLIC COMPANIES

     At June 30, 2002 and June 30, 2001,  Pivotal held  investments  in publicly
     traded  companies  in which it has less than 20% of the  voting  rights and
     over which it did not exercise significant  influence.  The investments are
     included in goodwill, intangibles and other assets and are recorded at fair
     value,  which  is  determined  based  on  quoted  market  prices,  with net
     unrealized  gains and losses  included in accumulated  other  comprehensive
     loss.  If  management  determines  that an  investment  has an  other  than
     temporary  decline in fair value, an impairment charge is included in other
     income and expenses.  During the year ended June 30, 2002, Pivotal recorded
     a writedown of $848 related to other than  temporary  declines in the value
     of its investments in public companies.



                                      -58-
<PAGE>

                               PIVOTAL CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (Expressed in United States dollars;
               all amounts in thousands except amounts per share)



1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     INVESTMENTS IN NON-PUBLIC COMPANIES

     Pivotal has certain  investments in non-publicly  traded companies in which
     it has less than 20% of the voting rights and in which it does not exercise
     significant influence. These investments are included in goodwill and other
     assets and are  accounted  for on a cost  basis.  Under the cost  method of
     accounting,  investments  in private  companies are carried at cost and are
     adjusted   only   for   other-than-temporary   declines   in  fair   value,
     distributions   of  earnings  and  additional   investments.   The  Company
     periodically   evaluates   whether  the  declines  in  fair  value  of  its
     investments are other-than-temporary.  This evaluation consists of a review
     of qualitative and  quantitative  factors by members of senior  management,
     including  a review  of the  investee's  financial  condition,  results  of
     operations,  operating  trends  and other  financial  ratios.  The  company
     further  considers  the implied  value from any recent  rounds of financing
     completed by the investee,  as well as market  prices of comparable  public
     companies.  During the year ended June 30, 2002,  Pivotal recorded a charge
     of $375 related to  impairment  in the value of  investments  in non-public
     companies.

     FAIR VALUE OF FINANCIAL INSTRUMENTS

     At June 30, 2002 and 2001, Pivotal has the following financial instruments:
     cash and cash equivalents,  short-term  investments,  accounts  receivable,
     investments  in public  and  non-public  companies,  accounts  payable  and
     accrued  liabilities,  and long term debt.  The carrying  value of cash and
     cash equivalents,  short-term investments, accounts receivable and accounts
     payable,  and accrued  liabilities  approximates  their fair value based on
     their liquidity or based on their short-term nature.

     The fair values of investments in publicly traded  companies are determined
     using  quoted  market  prices  for  those  securities.  The fair  values of
     investments in non-publicly traded companies are not readily  determinable.
     The fair value of Pivotal's  obligations under capital leases and long-term
     debt at June 30, 2002 and 2001 approximated  their carrying value. The fair
     value  of the  non-current  portion  of  restructuring  liabilities  is not
     readily determined.

     PROPERTY AND EQUIPMENT

     Property and equipment are recorded at cost less accumulated  depreciation.
     Depreciation  of property  and  equipment is provided  using the  following
     rates and methods:

              Computer software                  2 year straight line
              Computer hardware and equipment    30% declining balance or 3 year
                                                 straight-line
              Furniture and fixtures             20% declining balance

     Leasehold  improvements are amortized using the  straight-line  method over
     the  lesser  of the term of the  lease,  which is  typically  three to five
     years, or the useful life of the related improvement.

     GOODWILL, INTANGIBLES AND OTHER ASSETS

     Goodwill,  core technology and other intangible  assets are carried at cost
     less  accumulated  amortization  and are being amortized on a straight-line
     basis over the economic lives of the  respective  assets,  generally  three
     years.

     IMPAIRMENT OF LONG-LIVED ASSETS

     Long-lived assets and certain identifiable intangible assets to be held and
     used  are  reviewed   for   impairment   whenever   events  or  changes  in
     circumstances  indicate that the carrying  amount of such assets may not be
     recoverable.  Determination  of  recoverability  is based on an estimate of
     undiscounted  future cash flows resulting from the use of the asset and its
     eventual  disposition.  Measurement  of an impairment  loss for  long-lived
     assets and certain  identifiable  intangible assets that management expects
     to hold and use are based on the fair value of the asset. Long-lived assets
     and certain  identifiable  intangible assets to be disposed of are reported
     at the lower of  carrying  amount or fair value less costs to sell.  In the
     years ended June 30, 2002 and June 20, 2001,  Pivotal  recorded  impairment
     losses of $38,833  and $948,  respectively,  related to  long-lived  assets
     having  carrying values in excess of the cash flows expected to result from
     their disposal.  No such impairment loss had been identified by Pivotal for
     the year ended June 30, 2000.



                                      -59-
<PAGE>

                               PIVOTAL CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (Expressed in United States dollars;
               all amounts in thousands except amounts per share)



1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     RESEARCH AND DEVELOPMENT COSTS

     Research  and  development  costs,  which  consist  primarily  of  software
     development  costs, are expensed as incurred.  SFAS No. 86,  Accounting for
     the Costs of Computer  Software to be Sold,  Leased or Otherwise  Marketed,
     provides for the capitalization of certain software development costs after
     technological  feasibility of the software is established.  Under Pivotal's
     current  practice  of  developing  new  products  and   enhancements,   the
     technological  feasibility  of the underlying  software is not  established
     until  substantially  all product  development  is complete,  including the
     development of a working model. No such costs have been capitalized because
     the impact of capitalizing such costs would not be material.

     CONCENTRATION OF CREDIT RISK

     Financial  instruments that potentially  subject Pivotal to a concentration
     of credit risk consist principally of cash and cash equivalents, short-term
     investments  and  accounts  receivable.   Cash  and  cash  equivalents  are
     custodied  with   high-quality   financial   institutions   and  short-term
     investments are made in investment grade securities to mitigate exposure to
     credit risk.  Pivotal's  customer base is dispersed  across many  different
     geographic areas throughout North America,  Europe,  the Asia Pacific,  and
     Latin America and consists of companies in a variety of industries. Pivotal
     performs  ongoing credit  evaluations of its customers and does not require
     collateral or other security to support credit sales.  Pivotal  provides an
     allowance for bad debts based on  historical  experience  and  specifically
     identified  risks.  During the years ended June 30, 2002, 2001 and 2000, no
     single customer accounted for more than 10% of revenues.

     DERIVATIVE FINANCIAL INSTRUMENTS

     Pivotal's use of derivative financial  instruments is limited to short-term
     foreign  currency  forward  exchange  contracts also referred to as forward
     contracts,  used from time to time to manage  exposure  related  to certain
     Canadian  currency  transactions.  Pivotal  does not enter into  derivative
     financial  instruments  for trading  purposes.  Pivotal  identifies  future
     Canadian  currency   commitments  and  occasionally   enters  into  forward
     contracts to hedge exposure to fluctuations in the Canadian  dollar.  Gains
     and losses on forward contracts that are designated and effective as hedges
     of firm  foreign  currency  commitments  are  recognized  when the  related
     transaction  is  recognized.  Gains and losses not meeting the criteria for
     hedge accounting are recognized in operations in the current period.

     As of June 30, 2002 and June 30, 2001,  Pivotal had no outstanding  forward
     contracts.

     FOREIGN CURRENCY TRANSLATION

     The functional currency of Pivotal and its subsidiaries is the U.S. dollar.
     Monetary assets and  liabilities  denominated in other than the U.S. dollar
     are  translated  using the exchange  rates  prevailing at the balance sheet
     date, and non-monetary  assets are translated using the historical exchange
     rate at the  time  the  asset  was  acquired.  Revenues  and  expenses  are
     translated using average exchange rates prevailing during the period. Gains
     and losses on foreign currency transactions and translation are recorded in
     the consolidated statements of operations.

     ADVERTISING

     Pivotal  expenses  advertising  costs  as they  are  incurred.  Advertising
     expense is included in sales and marketing expenses and amounted to $1,157,
     $1,305,  and  $924 in the  years  ended  June 30,  2002,  2001,  and  2000,
     respectively.

     INCOME TAXES

     Pivotal  accounts  for income taxes under the  provisions  of SFAS No. 109,
     Accounting  for Income  Taxes.  This  statement  provides  for a  liability
     approach  under  which  deferred  income  taxes  are  provided  based  upon
     currently enacted tax laws and rates. Valuation allowances are established,
     when necessary, to reduce deferred tax assets to the amounts expected to be
     realized.



                                      -60-
<PAGE>

                               PIVOTAL CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (Expressed in United States dollars;
               all amounts in thousands except amounts per share)



1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     SHARE-BASED COMPENSATION

     As permitted under SFAS No. 123,  Accounting for Stock-Based  Compensation,
     Pivotal  has  accounted  for  employee  stock  options in  accordance  with
     Accounting  Principles  Board (APB)  Opinion No. 25,  Accounting  for Stock
     Issued to  Employees,  and has made the pro forma  disclosures  required by
     SFAS No. 123 in Note 11.

     Deferred compensation charges arise from those situations where options are
     granted  at an  exercise  price  lower  than the  deemed  fair value of the
     underlying  common  shares.  These  amounts  are  amortized  as  charges to
     operations over the vesting periods of the individual stock options.

     LOSS PER COMMON SHARE

     Basic loss per share is computed by dividing  net loss  available to common
     shareholders  by the weighted  average number of common shares  outstanding
     for the period.  Diluted  earnings per share amounts  reflect the potential
     dilution by  including  other  common share  equivalents,  including  stock
     options  and  redeemable  convertible  preferred  shares,  in the  weighted
     average number of common shares outstanding for a period, if dilutive.

     Pro forma loss per share is computed by dividing  net loss by the  weighted
     average  number of  common  shares  outstanding  and the  weighted  average
     redeemable  convertible  preferred shares and Class A convertible preferred
     shares  outstanding as if such shares were converted into common shares and
     had been  outstanding  at the beginning of the fiscal year. No  convertible
     preferred shares were outstanding  during the years ended June 30, 2002 and
     June 30, 2001.

     Pivotal had a net loss for all periods presented herein,  therefore none of
     the stock options  outstanding  during each of the periods  presented  were
     included  in the  computation  of  diluted  loss  per  share  as they  were
     antidilutive.

     The following  table sets forth the  computation of basic and diluted,  and
     pro forma basic and diluted loss per share:

<TABLE>
                                                                       Years ended June 30,
                                                           ----------------------------------------
                                                               2002          2001          2000
                                                           ----------------------------------------
         <S>                                               <C>           <C>           <C>
         Net loss(A)                                         $(95,945)     $(32,455)     $(8,362)
                                                           ========================================
         Weighted average number of
            common shares outstanding(B)                       24,039        23,173       18,643
                                                           ----------------------------------------
         Pro forma adjustment for convertible
           preferred shares                                         -             -        2,696
                                                           ---------------------------------------
         Pro forma basic and diluted weighted
           average number of shares(C)                              -             -       21,339
                                                           ========================================
         Loss per share
            Basic and diluted (A/B)                          $  (3.99)     $  (1.40)     $ (0.45)
            Pro forma basic and diluted (A/C)                       -             -      $ (0.39)
</TABLE>



                                      -61-
<PAGE>

                               PIVOTAL CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (Expressed in United States dollars;
               all amounts in thousands except amounts per share)



1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     RECENT ACCOUNTING PRONOUNCEMENTS

     In July 2001, the Financial  Accounting  Standards Board (FASB) issued SFAS
     No.  141,  Business  Combinations,  and SFAS No.  142,  Goodwill  and Other
     Intangible  Assets.  SFAS  No.141  addresses  the initial  recognition  and
     measurement of intangible  assets  acquired in a business  combination  and
     SFAS No. 142  addresses  the  subsequent  recognition  and  measurement  of
     intangible  assets  acquired  outside  of a  business  combination  whether
     acquired  individually  or with a group of other  assets.  These  standards
     require all future  business  combinations  to be  accounted  for using the
     purchase  method of  accounting.  Goodwill  will no longer be amortized but
     instead will be subject to impairment tests at least annually.

     Pivotal  adopted  SFAS No. 141 as of July 1, 2001 and is  required to adopt
     SFAS No. 142 on a  prospective  basis as of July 1, 2002.  The  adoption of
     SFAS  No.  141  did not  have a  material  effect  on  Pivotal's  financial
     position,  results of operations and cash flows in fiscal 2002.  Commencing
     July 1, 2002, Pivotal will no longer amortize goodwill pursuant to SFAS No.
     142.  Goodwill  amortization  for the year ended June 30, 2002 was $16,157.
     Unamortized goodwill as of June 30, 2002 was $7,632.  Pivotal will complete
     an initial goodwill impairment assessment in the first six months of fiscal
     2003 to determine if a transition  impairment  charge  should be recognized
     under SFAS No. 142.

     In  October  2001,  the  FASB  issued  SFAS  No.  144  "Accounting  for the
     Impairment or Disposal of Long-Lived  Assets." This  statements  supersedes
     SFAS No. 121,  "Accounting for the Impairment of Long-Lived  Assets and for
     Long-Lived  Assets  to be  Disposed  of."  Although  retaining  many of the
     fundamental  recognition  and  measurement  provisions of SFAS 121, the new
     rules  significantly  change  the  criteria  that  would  have to be met to
     classify an asset as held-for-sale.  The statements also supersedes certain
     provisions of Accounting  Principles  Board Opinion No. 30,  "Reporting the
     Results of Operations - Reporting the Effects of Disposal of a Segment of a
     Business, and Extraordinary,  Unusual and Infrequently Occurring Events and
     Transactions,"  and will  require  expected  future  operating  losses from
     discontinued  operations to be displayed in discontinued  operations in the
     period(s)  in  which  the  losses  are  incurred  rather  than  as  of  the
     measurement  date,  as  presently  required.  As  required by SFAS No. 144,
     Pivotal  will  adopt  this  new  statement  on July  1,  2002.  Pivotal  is
     evaluating  this statement but does not expect that it will have a material
     impact on its financial position, results of operations, or cash flows.

     On January 1, 2002,  Pivotal  adopted  Topic  D-103,  which  requires  that
     certain  out-of-pocket  expenses billed to customers be recorded as revenue
     versus an offset to the  related  expense.  Prior to the  adoption of Topic
     D-103, Pivotal recorded billed  out-of-pocket  expenses as an offset to the
     related expense.  Comparative  financial  statements for prior periods have
     been conformed to the current year presentation.  This change had no effect
     on operating income or net income for any period presented.

     In June  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
     Associated with Exit or Disposal Activities" ("SFAS No. 146"). SFAS No. 146
     addresses  significant issues regarding the recognition,  measurement,  and
     reporting of costs associated with exit and disposal activities,  including
     restructuring  activities.  SFAS No.  146  also  addresses  recognition  of
     certain  costs  related to  terminating  a  contract  that is not a capital
     lease,  costs  to  consolidate   facilities  or  relocate  employees,   and
     termination   benefits   provided  to  employees  that  are   involuntarily
     terminated under the terms of a one-time benefit arrangement that is not an
     ongoing   benefit   arrangement  or  an  individual   deferred-compensation
     contract.  SFAS No. 146 is effective for exit or disposal  activities  that
     are initiated  after December 31, 2002.  The impact of Pivotal's  financial
     position or results of  operations  from adopting SFAS No. 146 has not been
     determined.

     RECLASSIFICATIONS

     Certain  prior  period  amounts  have been  reclassified  to conform to the
     current period presentation.


2.   BUSINESS COMBINATIONS

     During  the years  ended  June 30,  2001 and 2000,  Pivotal  completed  the
     acquisitions  described  below which were  accounted for using the purchase
     method of accounting.  Pivotal did not complete any acquisitions during the
     year ended June 30, 2002.  The results of  operations  of each  acquisition
     were  included  in the  consolidated  statement  of  operations  since  the
     acquisition  date,  and the related  assets and  liabilities  were recorded
     based upon their respective fair values at the date of acquisition.



                                      -62-
<PAGE>

                               PIVOTAL CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (Expressed in United States dollars;
               all amounts in thousands except amounts per share)


2.   BUSINESS COMBINATIONS (Continued)

     FISCAL 2001

     Ionysys Technology Corporation

     On  October  16,  2000,   Pivotal  acquired  100%  of  Ionysys   Technology
     Corporation,   a  privately   held   company   providing   consulting   and
     implementation  services related to Internet  solutions based in Vancouver,
     British  Columbia.  Pivotal paid an aggregate cash purchase price of $1,014
     including acquisition related expenditures of $360.

     Project One Business Technologies Inc.

     On  October  31,  2000,  Pivotal  acquired  100% of  Project  One  Business
     Technologies  Inc.,  a privately  held  company  providing  consulting  and
     implementation  services specifically designed for the health care industry
     based in North  Vancouver,  British  Columbia.  Pivotal  paid an  aggregate
     purchase  price of $1,364  consisting of 19 common shares and cash of $460,
     which includes acquisition related expenditures of $380.

     The  agreement  for the  acquisition  of  Project  One  also  provided  for
     additional  consideration to a maximum of approximately 96 common shares to
     be paid based on achieving certain targets over the subsequent three years.
     At June 30,  2002  Pivotal  had paid $200 and  accrued  $1,923  related  to
     expected  additional  consideration  to be paid  to the  former  owners  of
     Project  One.  All  share  consideration  will be  recorded  as  additional
     purchase  price  when  issued.  No  additional  shares  had been  issued in
     connection  with the  acquisition  of Project One during the periods  ended
     June 30, 2002 and June 30, 2001.

     Software Spectrum CRM, Inc.

     On December 5, 2000,  Pivotal acquired 100% of Software  Spectrum CRM, Inc.
     Software  Spectrum,   based  in  Dallas,   Texas,  delivers  solutions  and
     consulting   expertise  in  multi-channel   contact  centers  and  customer
     relationship management to help organizations increase revenue and customer
     satisfaction. Pivotal paid an aggregate purchase price of $7,474 consisting
     of 138 common shares and cash of $1,925, which includes acquisition related
     expenditures of $1,175.

     Inform Inc.

     On June 22, 2001,  Pivotal  acquired 100% of Inform Inc., a company located
     in Toronto,  Ontario, which specializes in implementation  services for the
     financial  services  industry.  Pivotal paid an aggregate purchase price of
     $1,310  consisting  of 45 common  shares and cash of $359,  which  includes
     acquisition related expenditures of $266.



                                      -63-
<PAGE>

                               PIVOTAL CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (Expressed in United States dollars;
               all amounts in thousands except amounts per share)



2.   BUSINESS COMBINATIONS (Continued)

     Other

     Other acquisitions consist of asset acquisitions of implementation services
     businesses during the year ended June 30, 2001.

     The total consideration,  including  acquisition costs, was allocated based
     on estimated fair values on the acquisition date as follows:

<TABLE>
                                                                    Project     Software
                                                         Ionysys      One       Spectrum     Inform      Other      Total
                                                        ---------  ---------   ----------   ---------  ---------  ---------
         <S>                                            <C>        <C>         <C>          <C>          <C>      <C>
         Tangible assets acquired                        $    86    $    62     $  2,697     $ 1,374      $103     $ 4,322

         Liabilities assumed                                   -     (1,008)      (2,534)     (2,022)     (413)     (5,977)
                                                        ---------  ---------   ----------   ---------  ---------  ---------
         Net identifiable assets (liabilities)
            acquired                                          86       (946)         163        (648)     (310)     (1,655)
         Goodwill and other intangibles                      928      2,310        7,311       1,958     2,606      15,113
                                                        ---------  ---------   ----------   ---------  ---------  ---------
         Purchase price                                  $ 1,014    $ 1,364     $  7,474     $ 1,310    $2,296     $13,458
                                                        =========  =========    =========   =========  =========  =========
         Consideration (inclusive of cash
            received of $372)
              Cash                                       $1,014        $460     $  1,925     $   359    $2,296     $ 6,054
              Fair value of common shares
              issued                                          -         904        5,549         951         -       7,404
                                                        ---------  ---------   ----------   ---------  ---------  ---------
                                                         $1,014      $1,364     $  7,474     $ 1,310    $2,296     $13,458
                                                        =========  =========   ==========   =========  =========  =========
</TABLE>


     The fair value of the common shares of Pivotal  issued in  connection  with
     the  acquisitions  was  determined  by taking an average of the opening and
     closing  trading  price of the common shares for a short period just before
     and just after the terms of the  transaction  were agreed to by the parties
     and announced to the public or the closing price on the acquisition dates.




                                      -64-
<PAGE>

                               PIVOTAL CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (Expressed in United States dollars;
               all amounts in thousands except amounts per share)



2.   BUSINESS COMBINATIONS (Continued)

     Pro forma information

     Unaudited  pro forma results of  operations  assuming  Pivotal had acquired
     Ionysys, Project One, Software Spectrum,  Inform and Other at the beginning
     of the 2001  fiscal  year have not been  presented  because  the effects of
     these  acquisitions  were not material on either an individual or aggregate
     basis.


     FISCAL 2000

     Transitif S.A.

     Effective  December 3, 1999,  Pivotal  acquired  100% of Transitif  S.A., a
     French  corporation  that  distributed  customer  relationship   management
     solutions.  Transitif  deploys  Pivotal  solutions  through  its network of
     systems  integrators  throughout  France.  Pivotal paid an  aggregate  cash
     purchase price of $1,266,  including  acquisition  related  expenditures of
     $120  with  additional  consideration  payable  based on the net  after-tax
     earnings of Transitif and license  revenues  received by Transitif from the
     future sale of licenses  for Pivotal  products to June 2002.  All  earn-out
     payments will be recorded as additional  purchase  price when  determinable
     and Pivotal may elect to pay up to fifty percent of the additional purchase
     price,  if any, in Pivotal common  shares.  During the years ended June 30,
     2002 and 2001,  Pivotal  had paid $nil and $239,  and accrued $44 and $nil,
     respectively,  related to expected  additional  consideration to be paid to
     the former owners of Transitif S.A.

     Exactium Ltd.

     Effective June 2, 2000,  Pivotal acquired 100% of Exactium Ltd., an Israeli
     company  based in Atlanta,  Georgia that provides  e-selling  solutions for
     internet and Microsoft standards.  Pivotal paid an aggregate purchase price
     of $45,140  consisting  of 1,225 common shares and stock  options,  cash of
     $13,150  including a shareholder  loan repayment of $5,402 and  acquisition
     related expenditures of $775.

     Simba Digital Technologies Inc.

     On June 26, 2000, Pivotal acquired 100% of Simba Digital  Technologies Inc.
     Pivotal  paid an  aggregate  purchase  price of $17,590  consisting  of 837
     common shares and stock options,  and acquisition  related  expenditures of
     $455.



                                      -65-
<PAGE>

                               PIVOTAL CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (Expressed in United States dollars;
               all amounts in thousands except amounts per share)



2.   BUSINESS COMBINATIONS (Continued)

     The total consideration,  including  acquisition costs, was allocated based
     on estimated fair values on the acquisition date as follows:


<TABLE>
                                                               Transitif        Exactium        Simba         Total
                                                               ----------       --------      ----------    ---------
         <S>                                                   <C>             <C>             <C>          <C>
         Assets acquired
            In process research and development                 $      -        $ 2,830         $ 1,890      $ 4,720
            Core developed technology                                  -            290               -          290
            Acquired workforce                                         -            770             560        1,330
            Other assets                                           1,146            370             720        2,236
                                                               ----------       --------      ----------    ---------
                                                                   1,146          4,260           3,170        8,576
         Liabilities assumed                                      (1,050)          (926)           (683)      (2,659)
                                                               ----------       --------      ----------    ---------
         Net identifiable assets acquired                             96          3,334           2,487        5,917
         Goodwill                                                  1,170         41,806          15,103       58,079
                                                               ----------       --------      ----------    ---------
         Purchase price                                         $  1,266        $45,140         $17,590      $63,996
                                                               ==========       ========      ==========    =========
         Consideration (inclusive of cash received
          of $351)
            Cash                                                $  1,266        $13,150         $   455      $14,871
            Fair value of common shares and
              stock options issued                                     -         31,990          17,135       49,125
                                                               ----------       --------      ----------    ---------
                                                                $  1,266        $45,140         $17,590      $63,996
                                                               ==========       ========      ==========    =========
</TABLE>


     The fair value of the common shares of Pivotal issued in  conjunction  with
     the  acquisitions  was  determined  by taking an average of the opening and
     closing  trading  price of the common shares for a short period just before
     and just after the terms of the  transaction  were agreed to by the parties
     and  announced  to the public.  The  purchase  price was  increased  by the
     estimated  fair value of the stock  options of  Pivotal  exchanged  for the
     Exactium and Simba options outstanding.

     Purchased in process research and development

     Purchased  in  process   research  and   development   charges   relate  to
     acquisitions of companies  accounted for under the purchase method in which
     a portion  of the  purchase  price was  allocated  to  acquired  in process
     technology.  During the year ended June 30, 2000, Pivotal acquired Exactium
     and Simba and  included in the purchase  price was an  aggregate  amount of
     purchased in process research and development of $4,720.



                                      -66-
<PAGE>

                               PIVOTAL CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (Expressed in United States dollars;
               all amounts in thousands except amounts per share)



2.   BUSINESS COMBINATIONS (Continued)

     Purchased in process research and development (continued)

     Independent  valuations  were  performed  to assess and allocate a value to
     purchased in process  research and  development.  The value allocated to in
     process  research and development  was based upon the forecasted  operating
     after-tax  cash flows from the  technology  acquired,  giving effect to the
     stage of completion at the acquisition  date.  These  forecasted cash flows
     were then  discounted  at a rate  commensurate  with the risk  involved  in
     completing  the  acquired   technology   taking  into   consideration   the
     characteristics  and  applications  of each  product,  existing  and future
     markets, and assessments of the life cycle stage of each product.  Based on
     this  analysis,  the  existing  technology  that had reached  technological
     feasibility  was  capitalized.  Existing  technology,  that had not reached
     technological  feasibility and for which no future alternative use existed,
     was expensed.  Future cash flows were adjusted for the value contributed by
     any core technology and development  efforts  expected to be completed post
     acquisition.  Research and development costs to bring the products from the
     acquired companies to technological  feasibility are not expected to have a
     material impact on Pivotal's future results of operations or cash flows.

     The  forecasted  data employed in the analysis was based upon both forecast
     information  maintained  by the  management  of  Exactium  and  Simba,  and
     Pivotal's estimate of the future potential of the acquired technology.  The
     inputs  used by Pivotal in  analyzing  purchased  in process  research  and
     development were based upon assumptions that management believes reasonable
     but which are inherently uncertain and unpredictable. These assumptions may
     be  incomplete  or   inaccurate,   and  no  assurance  can  be  given  that
     unanticipated events and circumstances will not occur. Accordingly,  actual
     results may vary from the forecasted  results.  While  management  believes
     that  all of the  development  projects  will  be  successfully  completed,
     failure  of any of these  projects  to achieve  technological  feasibility,
     and/or  any  variance  from  forecasted  results,  may result in a material
     adverse effect on Pivotal's financial condition and results of operations.

     A description of the purchased in process research and development for each
     acquisition is set forth below.

     Exactium

     The allocation to in process  research and  development  was related to the
     Exactium eSelling  technology.  At the time of acquisition,  a prototype of
     Exactium's  product existed and it was being used in limited  trials.  This
     prototype  was not stable or  sufficiently  developed  to be scalable on an
     enterprise-wide basis.  Forecasted revenues used in the valuation reflected
     historical  growth  rates of software  sales for the  eBusiness  management
     market  and  Pivotal,  and  contemplated  revenues  related  to the sale of
     products  incorporating Exactium technology commencing during the summer of
     2000 and increasing  thereafter.  Pivotal estimated that the technology was
     approximately  80% complete as of the acquisition date. Net cash flows were
     discounted  to  net  present  value  at  the  acquisition   date  using  an
     appropriate tax adjusted rate reflecting the risk of unproven but partially
     developed  software  products.  The Exactium  technology  was  subsequently
     completed and the eSelling product was released in late June 2000.

     Simba

     The allocation to in process  research and  development  was related to the
     Simba electronic  marketing product. At the time of acquisition,  Simba did
     not  have  a   first-generation   product   and  there  were   considerable
     uncertainties as to completion of the product. The valuation of acquired in
     process research and development was prepared using the income approach and
     contemplated  that revenues  related to the sale of products  incorporating
     the Simba technology  would commence in late 2000 and increase  thereafter.
     Revenue  increases were based upon the  historical  growth rate of software
     sales for the electronic  marketing market and Pivotal.  Net after tax cash
     flows were discounted to their present value at the acquisition  date using
     an appropriate after-tax risk-adjusted discount rate reflecting the risk of
     unproven but partially  developed software products.  During the year ended
     June 30, 2002,  Pivotal  ceased  sales,  marketing and  development  of the
     acquired Simba technology.

     In addition to the charge for in-process research and development,  Pivotal
     recorded a write-down of other assets of Pivotal made redundant as a result
     of the acquisitions in the amount of $2,259.



                                      -67-
<PAGE>

                               PIVOTAL CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (Expressed in United States dollars;
               all amounts in thousands except amounts per share)



2.   BUSINESS COMBINATIONS (Continued)

     Pro forma information

     The following  table presents the unaudited pro forma results of operations
     for informational purposes assuming Pivotal had acquired Exactium and Simba
     at the beginning of the 2000 fiscal year.

                                                            June 30,
                                                          -------------
                                                              2000
                                                          -------------

         Net revenues                                       $ 58,602
         Net loss                                           $(33,943)
         Basic and diluted loss per share                   $  (1.68)


     The pro forma  results of  operations  give  effect to certain  adjustments
     including  amortization of purchased intangibles and goodwill.  Included in
     the pro forma net loss for the year ended June 30, 2000 is a $6,979  charge
     for in-process  research and development and other charges by Pivotal.  The
     information  may not  necessarily  be  indicative  of the  future  combined
     results of operations of Pivotal, Exactium and Simba. The pro forma results
     of operations have not been presented for the Transitif transaction because
     the  effect  of this  acquisition  was not  considered  to be  material  to
     Pivotal.


3.   RESTRUCTURING CHARGES AND ASSET IMPAIRMENTS

     RESTRUCTURING CHARGES

     During the year ended June 30, 2002, in light of the  significant  downturn
     in the North  American  and global  economies,  and the  related  impact on
     corporate  capital spending,  management  approved  restructuring  plans to
     align   Pivotal's  cost  structure  with   management's   revised   revenue
     expectations.  In connection with these plans,  Pivotal recorded charges of
     $53,576  related to both  restructuring  activities  and  intangible  asset
     writedowns.   These  charges  included   restructuring   costs  of  $20,589
     associated with workforce  reduction,  consolidation of excess  facilities,
     contract settlements and tangible asset impairments.  In addition,  Pivotal
     recorded  a charge of  $32,987  related  to the  impairment  of  previously
     recorded goodwill and other purchased intangible assets.  Pivotal may incur
     additional restructuring charges in subsequent periods.  Adjustments to the
     restructuring reserves will be made in future periods, if necessary,  based
     upon actual events and circumstances at the time.

     The major components of the  restructuring  reserve at June 30, 2002 are as
     follows:



                                      -68-
<PAGE>

                               PIVOTAL CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (Expressed in United States dollars;
               all amounts in thousands except amounts per share)



3.   RESTRUCTURING CHARGES AND ASSET IMPAIRMENTS (Continued)

<TABLE>
                                           Severance        Excess          Contract       Impairment of       Total
                                              and      Facilities/Asset    Settlement   Goodwill And Other
                                           Benefits       Impairments     Costs/Other        Purchased
                                                                                         Intangible Assets
                                          ----------     -------------    -----------     -----------------   ----------
     <S>                                   <C>             <C>             <C>               <C>               <C>
     Restructuring charges                 $  3,751        $  11,503       $ 5,335           $  32,987         $ 53,576
     Cash payments                           (3,456)          (1,326)       (1,671)                              (6,453)
     Non-cash portion                             -           (5,846)       (2,912)            (32,987)         (41,745)
                                          ----------     -------------    -----------     -----------------   ----------
     Reserve balances, June 30, 2002       $    295        $   4,331       $   752                   -         $  5,378
     Less current portion                  $    295        $   1,249       $   752                   -         $  2,296
                                          ----------     -------------    -----------     -----------------   ----------
     Non-current portion                         -         $   3,082             -                   -         $  3,082
</TABLE>


     The nature of the charges summarized above is as follows:

     SEVERANCE AND BENEFITS

     During  the  year  ended  June  30,  2002,   Pivotal  recorded  charges  of
     approximately   $3,751  related  to  severance  and  related   benefits  to
     approximately  200  terminated  employees.   The  workforce  reduction  was
     primarily in the United States,  Canada and the United Kingdom and extended
     across all geographical segments.

     EXCESS FACILITIES/ASSET IMPAIRMENTS

     During year ended June 30, 2002,  Pivotal recorded charges of approximately
     $11,503  related to the  consolidation  of  facilities  and  impairment  of
     certain  assets.  These charges  included  $5,846 of asset  impairments for
     certain  capital assets that were either  abandoned  during the year or for
     which the resulting  estimated future reduced cash flows were  insufficient
     to cover the carrying  amounts of the related assets.  The remainder of the
     charges related to the consolidation of facilities and represent  remaining
     lease commitments, net of expected sublease income, and other costs related
     to the closure of certain corporate facilities,  sales offices and research
     and   development   centers  for  activities   that  have  been  exited  or
     restructured.  The  remaining  lease  commitments  will  be paid  over  the
     respective  lease terms through to June 2007.  The estimated  costs to exit
     the  facilities,   including  expected  sublease  revenues,  are  based  on
     available  commercial  rates and an estimate of the time required to sublet
     the  facilities.  The charge may be increased in future  periods if further
     consolidations are required or if sublease income is less than expected.

     CONTRACT SETTLEMENT COSTS/OTHER

     During the year ended June 30, 2002, Pivotal recorded charges of $5,335 for
     contract  settlement costs including  penalties expected to be incurred due
     to Pivotal's withdrawal from certain purchase and partner contracts and for
     various unrecoverable prepaid expenses related to future services forfeited
     as a direct  result  of the  restructuring.  If  additional  contracts  are
     cancelled in future periods, or if additional unforeseen costs are incurred
     in respect of current contracts, this charge may increase.

     IMPAIRMENT OF GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS

     Pivotal   periodically   assesses  the  impairment  of  long-lived  assets,
     including  identifiable  intangibles,  in accordance with the provisions of
     SFAS No. 121,  "Accounting for the Impairment of Long-Lived  Assets and for
     Long-Lived Assets to be Disposed Of". Based on quantitative and qualitative
     measures,  Pivotal  assesses  the  need  to  record  impairment  losses  on
     long-lived  assets  used  in  operations  when  impairment  indicators  are
     present.

     To determine other than temporary impairment for identifiable  intangibles,
     the sum of the undiscounted  cash flows is compared to the current carrying
     value.  If the  undiscounted  cash flows are  greater  than or equal to the
     current  carrying  value  the asset is deemed  not to be  impaired.  If the
     undiscounted  cash flows are less than the current  carrying value then the
     asset is deemed impaired.  A discounted cash flow analysis is then prepared
     and the difference between the carrying value and the discounted cash flows
     represents the charge taken in accordance with SFAS No. 121.



                                      -69-
<PAGE>

                               PIVOTAL CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (Expressed in United States dollars;
               all amounts in thousands except amounts per share)


3.   RESTRUCTURING CHARGES AND ASSET IMPAIRMENTS (Continued)

     IMPAIRMENT OF GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS (CONTINUED)

     To determine the impairment loss for goodwill,  Pivotal determined the fair
     value  using a business  enterprise  methodology  that  includes a terminal
     value  assigned to the entity.  This value is then compared to the carrying
     value,  and  if  less,  the  difference  represents  the  impairment  to be
     recorded.  The  assumptions  supporting  the  estimated  future cash flows,
     including  the  estimated  terminal  values,   reflect   management's  best
     estimates.  It is possible that the estimates  and  assumptions  used under
     this  assessment  may change in the short  term,  resulting  in the need to
     further write down the goodwill and other long-lived  assets.  In addition,
     it is possible that Pivotal may have  additional  reductions in goodwill in
     future periods.

     As part of Pivotal's review of financial results during the year ended June
     30, 2002,  management  performed an impairment  assessment of  identifiable
     intangible  assets  and  goodwill  recorded  in  connection  with  its past
     acquisitions.  The  impairment  assessment  was performed due to changes in
     overall  economic   conditions  that  have  negatively  impacted  Pivotal's
     revenues and  forecasted  revenue  growth rate. As a result,  an impairment
     charge of $32,987  was  recorded  in the year ended June 30, 2002 to reduce
     goodwill  associated with  acquisitions and other purchased  intangibles to
     their  estimated  fair  values.   This  impairment   charge  was  primarily
     associated with the acquisitions of Exactium Ltd. and Digital Conversations
     Inc.  (formerly Simba Technologies  Inc.),  Software Spectrum CRM, Inc. and
     Project One Business Technologies Inc.

     PROVISION FOR DOUBTFUL ACCOUNTS RECEIVABLE

     During  the fourth  quarter  of fiscal  2001 and  throughout  fiscal  2002,
     Pivotal  experienced  delays in payments from certain  customers  resulting
     from a deterioration of financial  conditions affecting these customers due
     to the weakened North American  economy and capital  markets.  As a result,
     Pivotal  recorded  provisions for doubtful  accounts of $5.5 million in the
     year ended June 30, 2002 and $3.3  million in the year ended June 30, 2001.
     These  provisions  for  doubtful  accounts  are  included  in  general  and
     administrative expenses in the Consolidated Statements of Operations.


4.   ACCOUNTS RECEIVABLE

     Accounts receivable are net of an allowance for doubtful accounts of $1,704
     and $2,260 at June 30, 2002 and 2001, respectively.


5.   PROPERTY AND EQUIPMENT

                                                              June 30,
                                                      -------------------------
                                                         2002           2001
                                                      ----------     ----------
       Computer software and equipment                  $8,113         $11,619
       Furniture and fixtures                            2,786           2,944
       Leasehold improvements                            2,087           2,054
                                                      ----------     ----------
                                                        12,986          16,617
       Accumulated depreciation                         (8,785)         (7,434)
                                                      ----------     ----------
       Net book value                                   $4,201          $9,183
                                                      ==========     ==========



                                      -70-
<PAGE>

                               PIVOTAL CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (Expressed in United States dollars;
               all amounts in thousands except amounts per share)



6.   GOODWILL, INTANGIBLES AND OTHER ASSETS


                                                              June 30,
                                                      -------------------------
                                                         2002           2001
                                                      ----------     ----------
         Goodwill                                       $77,772        $75,408
         Acquired intangibles                             1,620          1,620
         Other assets                                     6,300          8,391
                                                      ----------     ----------
                                                         85,692         85,419
         Impairment charge                              (35,845)            --
         Accumulated amortization                       (40,332)       (24,175)
                                                      ----------     ----------
         Net book value                                 $ 9,515        $61,244
                                                      ==========     ==========



     Other assets in the amount of $6,300 consist of prepaid long-term royalties
     and   long-term   investments.   Amortization   of  $40,332   includes  the
     amortization of goodwill and acquired intangibles.


7.   ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

     The components of accounts payable and accrued liabilities were as follows:

                                                              June 30,
                                                      -------------------------
                                                         2002           2001
                                                      ----------     ----------

         Accounts payable                              $ 9,084         $12,721
         Accrued compensation                            3,287           3,867
         Accrued acquisition costs                       2,044           5,227
         Other accrued liabilities                       1,999           3,509
                                                      ----------     ----------
                                                       $16,414         $25,324
                                                      ==========     ==========


8.   BANK CREDIT FACILITY

     Pivotal  has a  credit  agreement  with  a  Canadian  chartered  bank.  The
     agreement  includes a $5,000 revolving letter of credit facility and a $500
     foreign  exchange  facility.  The facilities are secured by a charge on all
     current  and future  personal  property.  As of June 30,  2002,  letters of
     credit  totaling  $4,000,  principally  to secure  facilities and equipment
     lease  obligations,  were outstanding  under the letter of credit facility,
     and no amounts were outstanding under the foreign exchange facility.



                                      -71-
<PAGE>

                               PIVOTAL CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (Expressed in United States dollars;
               all amounts in thousands except amounts per share)



9.   OBLIGATIONS UNDER CAPITAL LEASES AND LONG-TERM DEBT

     Obligations under capital leases and long-term debt were as follows:

<TABLE>
                                                                                           June 30,
                                                                                 ---------------------------
                                                                                    2002            2001
                                                                                 ----------       ----------
     <S>                                                                        <C>              <C>
     Obligation under capital lease with an interest rate of 5%                   $    500         $   625
     Obligation under capital lease with an interest rate of 18%                       173               -
     Note payable, non-interest bearing, unsecured                                       -             365
     Other obligations                                                                  70             118
                                                                                 ----------       ----------
                                                                                       743           1,108
     Less:  Current portion                                                           (320)           (516)
                                                                                 ----------       ----------
                                                                                  $    423         $   592
                                                                                 ==========       ==========
</TABLE>


     As of June 30,  2002,  future  annual  minimum  lease  payments for capital
     leases were $775,  including $32 of imputed interest.  As of June 30, 2002,
     the net book value of capital  assets under capital lease was $87 (June 30,
     2002: $nil).


10.  COMMITMENTS AND CONTINGENCIES

     LEASE OBLIGATIONS

     Pivotal leases office  facilities  under  operating  leases which generally
     require  Pivotal  to pay a share of  operating  costs,  including  property
     taxes,  insurance and  maintenance.  Pivotal also leases certain  equipment
     under operating leases.

     Future minimum operating lease payments, inclusive of accrued restructuring
     costs,  for the years ending June 30 pursuant to leases  outstanding  as of
     June 30, 2002 are as follows:

                  2003                                             $8,067
                  2004                                              6,368
                  2005                                              4,794
                  2006                                              4,124
                  2007                                              3,269
                  Thereafter                                       15,236
                                                             -------------
                                                                  $41,858
                                                             =============

     Rent expense totaled approximately $5,708,  $4,755, and $2,237 in the years
     ended June 30, 2002, 2001 and 2000, respectively.

     SALE AND LEASEBACK

     During the year ended June 30,  2002,  the Company  completed  the sale and
     leaseback of certain  computer  hardware and software to an unrelated third
     party for cash proceeds of $1,277. Upon execution of the sale and leaseback
     transactions,  property  costs of $3,619 and  accumulated  depreciation  of
     $2,342 were removed from the  Company's  books  resulting in no net gain or
     loss.  Future  operating  lease  obligations  under  the  associated  lease
     agreements,  which are included in the lease obligation  figures above, are
     as follows: $708 in 2003, $569 in 2004, and $25 in 2005.

     LICENSING COMMITMENTS

     Pivotal  has  entered  into  various  agreements  that allow the Company to
     incorporate licensed technology into its products.  Under these agreements,
     Pivotal pays royalty fees that are based on a predetermined fee per license
     sold.  Pivotal  recognizes  royalty  costs as cost of license  revenues  as
     associated products are licensed. Royalty costs totaled $1,672, $1,992, and
     $1,498 in the years ended June 30, 2002, 2001 and 2000, respectfully. As at
     June 30, 2002,  future  commitments  under these royalty  arrangements  are
     anticipated to be approximately $1,000.



                                      -72-
<PAGE>

                               PIVOTAL CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (Expressed in United States dollars;
               all amounts in thousands except amounts per share)



10.  COMMITMENTS AND CONTINGENCIES (Continued)

     PURCHASE COMMITMENTS

     During the normal course of business,  Pivotal enters into  agreements with
     certain  supply  partners  in order to achieve  favorable  pricing or other
     terms.  As  of  June  30,  2002,  the  Company  is  committed  to  purchase
     approximately $873 under these purchase commitments.

     LEGAL PROCEEDINGS

     Pivotal  is  currently  in  litigation  with one of its  business  partners
     related  to a breach of  contract  claim  against  the  Company.  While the
     results of the litigation  and claims cannot be predicted  with  certainty,
     the Company  believes that the final outcome of this matter will not have a
     material adverse effect on Pivotal's business, financial condition, results
     of operations or cash flows.

11.  SHAREHOLDERS' EQUITY

     INITIAL PUBLIC OFFERING

     On  August  4,  1999,  Pivotal's   registration   statement  on  Form  F-1,
     Registration No. 333-92971,  became effective. The offering date was August
     5,  1999.  The  offering  was  terminated  as a result of all of the shares
     offered  being sold.  The managing  underwriters  were Merrill Lynch & Co.,
     Bear,  Stearns & Co. Inc.  and Dain  Rauscher  Incorporated.  The  offering
     consisted  of 3,975  common  shares of Pivotal,  which  included 475 common
     shares  offered  pursuant to the subsequent  exercise of the  underwriters'
     over allotment option on August 19, 1999. The aggregate price of the shares
     offered and sold was $47.7 million. Proceeds to Pivotal, after $3.3 million
     in  underwriting  discounts  and  commissions  and  $1.3  million  in other
     expenses,  were  $43.1  million.  Simultaneous  with  the  closing  of  the
     Offering,  all  outstanding  preferred  shares were  converted  into common
     shares.

     EQUITY FINANCING

     On November 21, 2000,  Pivotal  completed an equity  financing in Canada of
     one million  common  shares for  aggregate  proceeds of  approximately  $55
     million.  Proceeds to Pivotal  were $51.8  million,  after $2.2  million in
     underwriting  discounts and commissions and $1.0 million in other expenses.
     This  transaction was exempt from Securities Act  registration  pursuant to
     the  exclusion  from  registration  provided  by  Regulation  S  under  the
     Securities Act.

     PREFERRED SHARES AND COMMON SHARES

     The holder of each  common  share has the right to one vote per share.  The
     preferred  shares can at any time and from time to time be issued in one or
     more series and the Board of Directors can determine the special rights and
     restrictions  of  each  series   including  any  dividend,   conversion  or
     redemption  rights.  During the year ended  June 30,  2000,  all issued and
     outstanding  preferred shares and redeemable  convertible  preferred shares
     were converted into common shares.

     EMPLOYEE STOCK OPTION PLAN

     Under the terms of the 1999 Pivotal Incentive Stock Option Plan, as amended
     (the "Plan"),  the Board of Directors may grant incentive and non-qualified
     stock options to employees,  officers,  directors,  independent consultants
     and  contractors  of  Pivotal  and  subsidiaries,  partnerships,  and joint
     ventures  including  directors  thereof.  Generally,  Pivotal  grants stock
     options with exercise prices equal to the quoted market value of the common
     shares  on the date of grant,  as  determined  by the  Board of  Directors.
     Options generally vest over a four-year period,  but the Board of Directors
     may provide for different vesting  schedules in particular  cases.  Options
     generally expire ten years from the date of grant.



                                      -73-
<PAGE>

                               PIVOTAL CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (Expressed in United States dollars;
               all amounts in thousands except amounts per share)



11.  SHAREHOLDERS' EQUITY (Continued)

     EMPLOYEE STOCK OPTION PLAN (CONTINUED)

     On October 25, 2000,  Pivotal's  shareholders  approved an amendment to the
     Plan that  increased  the  maximum  number of common  shares  reserved  for
     issuance  under the Plan by 1,500 common shares to 6,576 in order to ensure
     sufficient  options are  available  to permit the  Company to maintain  its
     policy of granting options to employees.

     On November 15, 2001, Pivotal's  shareholders  approved changes to the Plan
     that  increase the number of shares  reserved for issuance  pursuant to the
     Plan by (a) 1,000  common  shares  from 7,376 to 8,376 plus (b) amended the
     automatic  increase on the first day of each fiscal year to equal 4% of the
     average number of common shares  outstanding  as used to calculate  diluted
     earnings per share for the preceding year.

     Pivotal has assumed certain options granted to former employees of acquired
     companies (the "Acquired  Options").  The Acquired  Options were assumed by
     Pivotal  outside of the Plan, but all are  administered  as if issued under
     the Plan. All of the Acquired  Options have been adjusted to give effect to
     the   conversion   under  the  terms  of  the   Agreements   and  Plans  of
     Reorganization  between  Pivotal and the companies  acquired.  The Acquired
     Options generally become  exercisable over a four year period and generally
     expire  either  five or ten  years  from the date of grant.  No  additional
     options will be granted under any of the acquired companies' plans.

     A summary of stock option  activity and  information  concerning  currently
     outstanding and exercisable options is as follows:


<TABLE>
                                                                                    Options Outstanding
                                                                                -------------------------------
                                                                   Options       Number of        Weighted
                                                                  Available        Common         Average
                                                                  for Grant        Shares      Exercise Price
                                                                                              (Expressed in US$,
                                                                                                except where
                                                                                                indicated)
                                                                 ----------     ----------    -----------------
        <S>                                                      <C>            <C>              <C>
         Balances, June 30, 1999                                    2,543          1,455         Cdn$ 6.07
                                                                 ----------     ----------    -----------------
            Options authorized                                        408              -                 -
            Options granted                                        (1,837)         1,837             23.12
            Options exercised                                           -           (375)             2.96
            Options cancelled                                         270           (270)            10.37
                                                                 ----------     ----------    -----------------
         Balances, June 30, 2000                                    1,384          2,647            $16.95
                                                                 ----------     ----------    -----------------
            Options authorized                                      1,500              -                 -
            Options granted                                        (2,341)         2,341             26.34
            Options exercised                                           -           (506)             6.14
            Options cancelled (net)                                   724           (811)            25.80
                                                                 ----------     ----------    -----------------
         Balances, June 30, 2001                                    1,267          3,671            $22.87
                                                                 ----------     ----------    -----------------
            Options authorized                                      1,800              -                 -
            Options granted                                        (4,196)         4,196              5.55
            Options exercised                                           -            (51)             1.46
            Options cancelled (net)                                 2,117         (2,030)            20.24
                                                                 ----------     ----------    -----------------
         Balances, June 30, 2002                                      988          5,786            $11.42
                                                                 ==========     ==========    =================
</TABLE>


                                      -74-
<PAGE>

                               PIVOTAL CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (Expressed in United States dollars;
               all amounts in thousands except amounts per share)



11.  SHAREHOLDERS' EQUITY (Continued)

     EMPLOYEE STOCK OPTION PLAN (CONTINUED)

     The following  tables  summarize  information  concerning  outstanding  and
     exercisable options at June 30, 2002:

<TABLE>
                                                                                         Options Exercisable
                                                                                    ------------------------------
                                                                      Weighted                        Weighted
                                                     Average           Average                         Average
                                                    Remaining         Exercise                        Exercise
             Exercise Prices       Number          Contractual          Price           Number          Price
                per Share        Outstanding     Life (in years)      per Share       Exercisable     per Share
            -----------------   --------------    ---------------    ------------   ---------------   ------------
             <S>                <C>                <C>               <C>             <C>              <C>
              $0.00  -  $5.85       2,928               8.9           $  4.27             488           $  3.01
              $5.85  - $11.70       1,514               9.0              8.05             309              8.39
              $11.70 - $17.55         242               7.6             12.52             105             12.70
              $17.55 - $23.40           6               7.3             19.82               4             19.83
              $23.40 - $29.25         445               8.0             25.16             203             25.29
              $29.25 - $35.10         143               7.6             31.48              63             31.53
              $35.10 - $40.95         198               8.3             36.17              74             36.22
              $40.95 - $46.80         139               7.0             43.14              68             42.98
              $46.80 - $52.65          87               7.6             51.08              43             51.15
              $52.65 - $58.50          84               8.3             58.50              32             58.50
            -----------------   --------------    ---------------    ------------   ---------------   ------------
               $0.00 - $58.50       5,786               8.7           $ 11.42           1,389           $ 16.02
            =================   ==============    ===============    ============   ===============   ============
</TABLE>


     EMPLOYEE STOCK PURCHASE PLAN

     On June 17,  1999,  Pivotal's  shareholders  approved  the  adoption  of an
     employee  stock  purchase plan and  authorized  the issuance of up to 1,000
     common  shares under the plan with  amendments as the Board of Directors of
     Pivotal may deem  desirable.  Under the  employee  stock  purchase  plan, a
     qualified  employee may  authorize  payroll  deductions of up to 10% of the
     employee's compensation (as defined) to a maximum of $25 to purchase common
     stock at 85% of the lower of fair market  value at the  beginning or end of
     the related subscription period.

     COMMON SHARES RESERVED FOR FUTURE ISSUANCE

     Pivotal has reserved common shares as of June 30, 2002 as follows:

         Exercise of stock options                                   6,774
         Employee Stock Purchase Plan                                  746
                                                             --------------
                                                                     7,520
                                                             ==============


                                      -75-
<PAGE>

                               PIVOTAL CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (Expressed in United States dollars;
               all amounts in thousands except amounts per share)



11.  SHAREHOLDERS' EQUITY (Continued)

     EMPLOYEE STOCK OPTION PLAN (CONTINUED)

     Under APB Opinion No. 25, because the exercise price of Pivotal's  employee
     stock options  generally  equals the fair value of the underlying  stock on
     the  date  of  grant,  no  compensation  expense  is  recognized.  Deferred
     compensation  expense of $473 was recorded during 1999 for those situations
     where the exercise  price of an option was lower than the deemed fair value
     for  financial  reporting  purposes of the  underlying  common  stock.  The
     deferred  compensation  is being  amortized  over the vesting period of the
     underlying options.  Amortization of the deferred share-based  compensation
     balance of $23 at June 30, 2002 will be  completed  during year ending June
     30, 2003.

     An  alternative  method of  accounting  for stock  options is SFAS No. 123,
     Accounting for Stock-Based Compensation. Under SFAS No. 123, employee stock
     options  are  valued at the grant date  using the  Black-Scholes  valuation
     model and the resultant  compensation  cost is recognized  ratably over the
     vesting period.  Had compensation cost for Pivotal's share option plan been
     determined based on the  Black-Scholes  value at the grant dates for awards
     as prescribed by SFAS No. 123, the pro forma net loss and basic and diluted
     loss per share would have been as follows:

<TABLE>
                                                                 Years Ended June 30,
                                                    ---------------------------------------------
                                                        2002             2001             2000
                                                    ------------     ------------     -----------
         <S>                                        <C>                <C>            <C>
         Net loss
            As reported                              $  (95,945)        $(32,455)      $ (8,362)
            SFAS No. 123 pro forma                     (118,622)         (48,901)       (10,541)

         Basic and diluted loss per share
            As reported                              $    (3.99)        $  (1.40)      $  (0.45)
            SFAS No. 123 pro forma                   $    (4.93)           (2.11)         (0.57)
</TABLE>


     Compensation  expense recognized in providing pro forma disclosures may not
     be  representative  of the effects on pro forma  earnings  for future years
     since SFAS No. 123 applies only to options granted after 1996.

     The weighted  average  Black-Scholes  option pricing model value of options
     granted  under the share  option plan during the years ended June 30, 2002,
     2001  and  2000  were  U.S.$4.35,  U.S.$20.76  and  U.S.$15.45  per  share,
     respectively. The fair value for these options was estimated at the date of
     grant using the following weighted average assumptions:


<TABLE>
                                                                                 Years Ended June 30,
                                                                      ------------------------------------------
                                                                          2002           2001           2000
                                                                      ------------   -----------    ------------
        <S>                                                           <C>            <C>             <C>
         Assumptions
         Volatility factor of expected
            market price of Pivotal's shares                             118.4%         121.2%          85.0%
         Dividend yield                                                    0.0%           0.0%           0.0%
         Weighted average expected
            life of stock options (years)                             4.0 years      4.0 years      4.0 years
         Risk free interest rate                                           4.4%           5.0%           7.0%
</TABLE>


                                      -76-
<PAGE>

                               PIVOTAL CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (Expressed in United States dollars;
               all amounts in thousands except amounts per share)



12.  INCOME TAXES

     Details of the income tax provision (recovery) were as follows:

                                                   Years ended June 30,
                                         ---------------------------------------
                                            2002            2001          2000
                                         ----------     ----------    ----------
     Current
        Canadian                             $44           $(547)            $-
        Foreign                              342            1,050           557
                                         ----------     ----------    ----------
                                             386              503           557
     Deferred
        Canadian                               -                -             -
                                         ----------     ----------    ----------
     Income tax provision                   $386             $503          $557
                                         ==========     ==========    ==========


     The  reported  income tax  provision  differs  from the amount  computed by
     applying the Canadian basic statutory rate to the loss before income taxes.
     The reasons for this difference and the related tax effects are as follows:

<TABLE>
                                                                                   Years ended June 30,
                                                                         ---------------------------------------
                                                                            2002            2001          2000
                                                                         ----------     ----------    ----------
     <S>                                                                 <C>            <C>          <C>
     Canadian basic statutory tax rate                                         42%            45%          45%
                                                                         ----------     ----------    ----------
     Expected income tax recovery                                        $ (40,135)      $(14,378)     $(3,512)
     Foreign tax rate differences                                              (92)          (137)        (155)
     Goodwill amortization and other non-deductible expenses                21,767         10,087        2,661
     Research and development tax credits                                        -           (470)        (127)
     Benefit of losses not tax affected                                     14,833          3,407          389
     Benefit of temporary differences not recognized                         5,464          1,994        1,301
                                                                         ----------     ----------    ----------
                                                                         $     386       $    503      $   557
                                                                         ==========     ==========    ==========
</TABLE>


                                      -77-
<PAGE>

                               PIVOTAL CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (Expressed in United States dollars;
               all amounts in thousands except amounts per share)



12.  INCOME TAXES (Continued)

     Deferred income taxes result principally from temporary  differences in the
     recognition  of certain  revenue and expense items for financial and income
     tax reporting  purposes.  Significant  components of Pivotal's deferred tax
     assets and liabilities as of June 30, 2002 and 2001 are as follows:

<TABLE>
                                                                                2002            2001
                                                                             -----------    -----------
         <S>                                                                 <C>             <C>
         Deferred income tax assets
            Net operating tax loss carry-forwards                             $  14,870       $  6,158
            Research and development expenses                                       424            220
            Book and tax base differences on assets                               3,423          2,388
            Other                                                                    81             87
                                                                             -----------    -----------
         Total deferred income tax assets                                        18,798          8,853
         Valuation allowance for deferred income tax assets                     (18,798)        (8,853)
                                                                             -----------    -----------
         Net deferred income tax assets                                               -              -

         Deferred income tax liabilities
            Book and tax base differences on assets                                   -              -
                                                                             -----------    -----------
         Net deferred income tax liabilities included in accounts
            payable and accrued liabilities                                   $       -       $      -
                                                                             ===========    ===========
</TABLE>


     Due to the  uncertainty  surrounding the realization of the deferred income
     tax  assets in future  income tax  returns,  Pivotal  has a 100%  valuation
     allowance  against its  deferred  income tax assets.  The net change in the
     total valuation  allowance for the years ended June 30, 2002 and 2001 was a
     provision of $(9,945) and $(4,284), respectively.

     As of June 30, 2002,  Pivotal has tax loss  carry-forwards of approximately
     $35,404  available to reduce future  years' income for tax purposes.  These
     carry-forward losses expire at various dates between 2004 to 2009.


13.  ACCUMULATED OTHER COMPREHENSIVE LOSS

     Accumulated other comprehensive loss consisted of the following:

<TABLE>
                                                                 Years ended June 30,
                                                    -----------------------------------------------
                                                       2002               2001             2000
                                                    ----------        ----------        -----------
         <S>                                        <C>                <C>                <C>
         Unrealized loss on
            available-for-sale securities            $   (90)           $  (203)           $    -
                                                    ==========        ==========        ===========
</TABLE>



                                      -78-
<PAGE>

                               PIVOTAL CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (Expressed in United States dollars;
               all amounts in thousands except amounts per share)



14.  CHANGE IN OPERATING ASSETS AND LIABILITIES

     The change in operating assets and liabilities was as follows:

<TABLE>
                                                                       June 30,
                                                        -------------------------------------------
                                                            2002            2001            2000
                                                         ----------      ----------      ----------
         <S>                                            <C>              <C>             <C>
         Accounts receivable                             $ 14,261         $(9,156)        $(7,511)
         Prepaid expenses                                  (1,410)           (761)           (545)
         Accounts payable and accrued liabilities          (8,910)          4,141           7,260
         Accrued restructuring costs                        5,438               -               -
         Deferred revenue                                  (1,483)          4,408           3,265
                                                         ----------      ----------      ----------
                                                         $  7,896         $(1,368)        $ 2,469
                                                         ==========      ==========      ==========
</TABLE>


15.  RELATED PARTY TRANSACTIONS

     During the year ended June 30, 2000,  Pivotal  entered into an agreement to
     license  software  from a company  with a former  director in common  under
     which Pivotal paid $350.

     During the year ended June 30, 2001, Pivotal loaned $250 to Vincent Mifsud,
     the previous Chief Operating Officer, Chief Financial Officer and Executive
     Vice President of Pivotal. This loan was made while Mr. Mifsud was still an
     officer of Pivotal, and was non-interest bearing, and was secured by shares
     of a private company.  During the year ended June 30, 2002, Mr. Mifsud left
     the  employment  of Pivotal  and the shares  being  held as  security  were
     subsequently  sold and the proceeds of the sale, $250, were paid to Pivotal
     as repayment in full of the loan balance.

     During the year ended June 30, 2001,  Pivotal  loaned  Cdn.$124 to Andre J.
     Beaulieu,  General Counsel and Assistant Secretary of Pivotal. This loan is
     non-interest bearing,  unsecured and pursuant to an agreement dated May 29,
     2002,  Cdn.$17 of the loan has been repaid and the  outstanding  balance of
     the loan will be repaid through  future  incentive  bonuses  payable to Mr.
     Beaulieu.

     On  October 1, 2001,  Pivotal  entered  into a  consulting  agreement  with
     Christopher  Lochhead.  Mr.  Lochhead was  appointed to Pivotal's  Board of
     Directors  on November  27,  2001.  Pursuant to the  consulting  agreement,
     Pivotal  agreed  to pay Mr.  Lochhead  $12 per  month in  exchange  for Mr.
     Lochhead providing a pre-determined number of monthly consulting hours. Mr.
     Lochhead  may  charge an  additional  fee if the  pre-determined  number of
     monthly consulting hours is exceeded.  During the year ended June 30, 2002,
     Pivotal paid Mr. Lochhead a total of $211 pursuant to the agreement.



                                      -79-
<PAGE>

                               PIVOTAL CORPORATION

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                      (Expressed in United States dollars;
               all amounts in thousands except amounts per share)



16.  SEGMENTED INFORMATION

     Pivotal  develops,  markets,  sells and  supports  Internet  and  corporate
     network-based  software applications used for managing customer and selling
     partner relationships in one business segment.

     Pivotal  licenses  and  markets  its  products   internationally.   Pivotal
     attributes  revenue among the  geographical  areas based on the location of
     the customers involved.  The following table presents a summary of revenues
     by geographical region:

                                                    Years ended June 30,
                                         ---------------------------------------
                                             2002          2001         2000
                                         ----------     -----------   ----------
     North America                          $36,722       $64,170      $38,507
     Europe, Middle East, Africa             25,818        23,661       11,373
     Asia Pacific, Latin America              7,076         8,323        3,673
                                         ----------     -----------   ----------
                                            $69,616       $96,154      $53,553
                                         ==========     ===========   ==========



     The  following  table  presents  a summary of  property  and  equipment  by
     geographic region:

                                                              June 30,
                                                     --------------------------
                                                        2002            2001
                                                     -----------     ----------
         Property and equipment
            North America                              $2,877          $7,420
            Europe, Middle East, Africa                 1,324           1,763
            Asia Pacific, Latin America                     -               -
                                                     -----------     ----------
                                                       $4,201          $9,183
                                                     ===========     ==========



                                      -80-
<PAGE>

Schedule II -- Valuation and Qualifying Accounts Years ended June 30, 2002, 2001
and 2000 (in thousands) Allowance for Doubtful Accounts


<TABLE>
                                 Balance at                Additions              Additions
                                beginning of            charged to costs          charged to                            Balance at
Year                               year                   and expenses          other accounts       Write-offs         end of Year
----                               ----                   ------------          --------------       ----------         -----------
<C>                            <C>                          <C>                    <C>                <C>               <C>
2002                              $2,260                     5,510                     --               6,066              $1,704
2001                              $  740                     3,312                     --               1,792              $2,260
2000                              $  334                       626                     --                 220              $  740

</TABLE>





                                      -81-
<PAGE>

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

Not applicable.


                                    PART III

ITEM 10.  DIRECTORS AND OFFICERS OF THE REGISTRANT

EXECUTIVE OFFICERS AND DIRECTORS

The table below  provides the names,  ages,  and  positions  with Pivotal of our
executive officers and directors:

<TABLE>
            NAME                            AGE                         POSITION
            ----                            ---                         --------
<S>                                       <C>      <C>
Kent Roger (Bo) Manning..............        44    President, Chief Executive Officer and a Director

Norman B. Francis....................        53    Chairman of the Board of Directors

Keith R. Wales.......................        57    Director

Divesh Sisodraker....................        33    Chief Financial Officer

Robert Douglas.......................        39    Executive Vice President, North American Sales and
                                                   Operations

Joseph Dworak........................        37    Senior Vice President, North American Services

Heather Claridge.....................        41    Chief People Officer

John O'Hara..........................        44    Executive Vice President, EMEA

James R. Warden......................        59    Senior Vice President, Asia Pacific and Latin
                                                   America Sales

Jesper Anderson......................        39    Executive Vice President, Products

Cathie Frazzini......................        35    Senior Vice President, Alliances

Jeremy A. Jaech......................        47    Director

Robert J. Louis......................        57    Director

Steven M. Gordon.....................        43    Director

Christopher Lochhead.................        34    Director

Howard Gwin..........................        44    Director
------------------
</TABLE>

     KENT ROGER (BO) MANNING has served as President,  Chief  Executive  Officer
and a director since August 2001. Prior to joining  Pivotal,  Mr. Manning served
as co-founder and Chief Executive Officer of Roundarch,  a Customer Relationship
Management solutions joint venture between Deloitte Consulting, BroadVision, and
WPP Group  (holding  company for Ogilvy & Mather,  Young & Rubicam  Inc.  and J.
Walter Thompson), from January 2000 to August 2001. Mr. Manning served as Global
CRM  Co-Practice  Leader,  for Deloitte  Consulting,  from June 1995 to December
1999. Mr. Manning also served as a Consultant to Deloitte  Consulting from April
1987 to May 1995. Prior to that, Mr. Manning served as National Sales Manager of
Infopro from November 1984 to August 1987.  Mr. Manning holds a Bachelor of Arts
degree from the  University of Michigan in Economics and received his Masters of
Management  in 1987,  from the  Kellogg  School of  Management  at  Northwestern
University.

     NORMAN B.  FRANCIS  co-founded  Pivotal  in 1990 and has  served a director
since December 1990 and as President and Chief  Executive  Officer from December
1990 to August  2001.  Mr.  Francis'  experience  prior to  co-founding  Pivotal
includes  co-founding Basic Software Group Inc., an accounting software company,
in 1979. Mr. Francis served as Basic Software Group's Vice President, Operations
until the company was  acquired by Computer  Associates  International,  Inc., a
software company, in 1985. Mr. Francis served as Vice President,  Micro Products
Division  of  Computer  Associates  International  Inc.  from 1985 to 1990.  Mr.
Francis



                                      -82-
<PAGE>

is also a director of CREO Inc. Mr.  Francis holds a Bachelor of Science
degree in Computer Science from the University of British  Columbia,  Canada and
is a Chartered Accountant.

     KEITH R.  WALES  co-founded  Pivotal  in 1990 and has  served as a director
since December 1990 and as Executive  Vice  President,  Corporate  Projects from
January 2001 to May 2002. Mr. Wales also served as Chief Technical  Officer from
July 1999 through December 2000 and as Vice President,  Research and Development
from December 1990 through July 1999. Mr. Wales' experience prior to co-founding
Pivotal includes  co-founding Basic Software Group Inc., an accounting  software
company,  in 1979.  Mr. Wales served as Basic Software  Group's Vice  President,
Research and Development  until the company was acquired by Computer  Associates
International,  Inc. in 1985.  Mr. Wales served as  Divisional  Vice  President,
Research and Development of Computer Associates International, Inc. from 1985 to
1986. Mr. Wales holds a Bachelor of Science degree in Mathematics and a master's
of science degree in Computer  Science from the University of British  Columbia,
Canada.

     DIVESH SISODRAKER has served as Chief Financial Officer since October 2001.
Mr.  Sisodraker  also  served  as Vice  President,  Corporate  Development  from
December 2000 through September 2001 and as Director,  Business Development from
January 2000 through  December 2000. Prior to joining  Pivotal,  Mr.  Sisodraker
served as Director,  Finance and  Treasurer  of A.L.I.  Technologies  Inc.  from
September 1998 to December 1999. Prior to joining A.L.I  Technologies  Inc., Mr.
Sisodraker held roles as an Investment  Analyst with HSBC Capel Asia Limited and
West Shore Ventures Limited from September 1995 to February 1998. Prior to this,
Mr.  Sisodraker  worked as a  Specialist/Senior  Accountant  with KPMG Chartered
Accountants from January 1991 to September 1995. Mr. Sisodraker holds a Bachelor
of Business  Administration  degree,  Honours,  from Simon Fraser  University of
Burnaby, British Columbia and is a Chartered Accountant.

     ROBERT DOUGLAS has served as Executive Vice President, North American Sales
and Operation since October 2001. Prior to joining  Pivotal,  Mr. Douglas served
as Vice President and General Manager of Siebel Systems Canada, Ltd. from August
1998 to October 2001.  Prior to Siebel,  Mr. Douglas  served as Vice  President,
Central  Canada of Oracle  Corporation  Canada Inc. from May 1997 to August 1998
and as  Regional  Manager  from  July 1995 to May 1997.  Mr.  Douglas  is also a
director of MKS,  Inc. Mr.  Douglas  holds a bachelors'  degree in Business from
McMaster University of Hamilton, Ontario.

     JOSEPH H.  DWORAK  has  served as Senior  Vice  President,  North  American
Services and Support since October 2001.  Prior to joining  Pivotal,  Mr. Dworak
served  as  Senior  Vice  President,   Global  Proficiency  Leader  of  Eloyalty
Corporation  from January 2001 to October  2001.  Prior to Eloyalty,  Mr. Dworak
served as a Partner with Deloitte  Consulting,  leading a major portion of their
Customer  Relationship  Management  practice,  from June 1994 to December  2000.
Prior to that, Mr. Dworak worked in a variety of technical and managerial  roles
with FMC Corporation  from January 1987 to May 1994. Mr. Dworak holds a Bachelor
of  Science  degree in  Computer  Science  and  Computational  Mathematics  from
Northern Illinois University and received his Masters of Business Administration
degree,  graduating Summa Cum Ladue,  from Southern  Methodist  University's Cox
School of Business.

     HEATHER E. CLARIDGE has served as Chief People  Officer since October 2001,
Vice  President,  Human  Resources  from July 2000 to October 2001 and Director,
Human  Resources  from  November  1998 to July 2000.  Prior to  joining  Pivotal
Corporation,  Ms.  Claridge  served as  Division  Human  Resources  Manager  for
Motorola  Inc's  Wireless  Data  Division  from January  1996 to November  1998,
Manager  Human  Resources  from July 1991 to  January  1996 and Human  Resources
Specialist from November 1988 to July 1991. Prior to Motorola,  Ms. Claridge was
the  Program  Coordinator,  Corporate  Health and  Wellness  Programs  for Telus
(formally  British Columbia  Telephone  Company) from September 1984 to November
1988. Ms.  Claridge holds a Master of Arts degree in  Organizational  Design and
Effectiveness from the Fielding Institute,  Santa Barbara,  CA, and a Bachelor's
degree in Physical Education from the University of British Columbia, Canada.

     JOHN EDWARD O'HARA has served as Executive Vice President,  Europe,  Middle
East & Africa  assuming full profit & loss  responsibility  for the region since
June 2001. Prior to joining Pivotal,  Mr. O'Hara served as Managing  Director UK
and North Europe for Lotus Development Corporation, a wholly owned subsidiary of
IBM,  from  January  2000  to  June  2001,   which  focused  on  e-business  and
e-collaboration  solutions  (software  licenses and services) for the enterprise
market.  While with Lotus Corporation,  Mr. O'Hara also served as EMEA Sales and
Strategy  Director  from January 1998 to December 1999 and as Director of Global
Account Sales from March 1996 to December  1997. In addition to his  experiences
at Lotus,  both before and after the  acquisition of Lotus by IBM Corporation in
1996,  Mr.  O'Hara  served  as  General  Manager  UK  for  "Electronic  Software
Publishing   (ESP)  Limited"  a  company   specializing  in   representing   and
republishing   software,   in  Europe,  on  behalf  of  predominantly   US-based
organizations  trying to establish a presence in the European market. Mr. O'Hara
has also worked for Procter & Gamble,  Citibank  Corporation  and Beecham  Group
(now  Glaxo  SmithKline)  in the early  part of his  career.  Mr O'Hara  holds a
Bachelor of Science degree from the  University of Wales  Institute of Science &
Technology  (UWIST) and a Master of Science degree in Computer  Science from the
University of Manchester.

     JAMES R. WARDEN has served as the Senior Vice President of Asia Pacific and
Latin America Sales since April 2001,  and Vice  President of Asia Pacific Sales
from May 1999. Prior to joining Pivotal,  Mr. Warden was the Vice President Baan
Front  Office  Systems,  Asia  Pacific  from  August  1997 to May  1999 and Vice
President  International  Aurum Software from January 1997 to August



                                      -83-
<PAGE>

1997,  which was  acquired by Baan.  Mr.  Warden also served as the  Director of
Sales and Operations Asia Pacific and Latin America for Continuus  Software from
August  1994 to  January  1997.  Prior to  Continuus,  Mr.  Warden  was the Vice
President of Sales for Softool  Corporation  from September 1993 to August 1994.
Mr. Warden was the Director of Latin  American  Sales and  Operations  for Unify
Corporation  from June 1986 to September  1993.  Mr. Warden  attended  Fullerton
College and majored in Industrial Electronics and Marketing.

     JESPER  ANDERSON has served as Executive  Vice  President of Products since
April 2002. Prior to joining  Pivotal,  Mr. Andersen served as Vice President of
CRM Online  Services at Oracle  Corporation  from August 1999 to March 2002. Mr.
Andersen also served as a Senior Director of Development for Service Products in
the Customer  Relationship  Management  division at Oracle  Corporation from May
1998 to July 1999.  Prior to that, Mr. Andersen  served as Development  Director
for  Computer  Resources  International,  Inc.,  the US  subsidiary  of a Danish
Software  Company from May 1996 to April 1998, and also as Sales Account Manager
from October 1994 to April 1996. Prior to that Mr. Andersen served as a Software
Developer  and later as a Chief  Architect and Software  Development  Manager at
Computer Resources International A/S in Copenhagen,  Denmark from September 1989
to January 1994. Mr. Andersen holds a Master's  Degree in Computer  Science from
Aalborg University, Denmark in 1986.

     CATHIE FRAZZINI has served as Senior Vice President, Global Alliances since
August 2001. Prior to joining  Pivotal,  Ms. Frazzini served as Senior Director,
Worldwide Strategic Alliances,  as Director,  Worldwide Consulting Alliances, as
Senior  Manager,  Sales  Channel  Operations,   as  Senior  Manager,   Strategic
Alliances,  as  Manager,  Worldwide  Employee  and Partner  Training,  as Senior
Technical Trainer and as Technical  Consultant for J.D. Edwards and Company from
February 1991 to August 2001. Prior to J.D. Edwards,  Ms. Frazzini served as End
User  Support  Specialist  of Silgan  Container  Corporation  from March 1989 to
February 1991 and as Cost  Accounting  Analyst for Tri-Valley  Growers from June
1988 to March 1989. Ms.  Frazzini holds a Bachelor of Science degree in Computer
Science from  University of the Pacific,  Stockton,  California  and a Master of
Arts degree in  Instructional  Technology from  University of Colorado,  Denver,
Colorado.

     JEREMY A.  JAECH has  served as a  director  since  July  1996.  Mr.  Jaech
currently  serves as Managing Member,  Poseidon  Ventures LLC. Prior to Poseidon
Ventures,  Mr. Jaech served as Vice President for the Business Tools Division at
Microsoft   Corporation.   Prior  to  Microsoft,   Mr.  Jaech  co-founded  Visio
Corporation  in  September   1990,  a  supplier  of   enterprise-wide   business
diagramming  and technical  drawing  software for Microsoft  Windows,  which was
later sold to  Microsoft.  Prior to  co-founding  Visio  Corporation,  Mr. Jaech
co-founded Aldus Corporation in 1984 and served as Vice President,  Engineering.
Aldus  Corporation  was purchased by Adobe Systems  Incorporation  in 1989.  Mr.
Jaech is also a director of Real  Networks,  Inc.  Mr.  Jaech holds a bachelor's
degree in  Mathematics  and a  master's  degree  in  Computer  Science  from the
University of Washington.

     ROBERT J. LOUIS has served as a director since June 1995. Since March 1999,
Mr. Louis has served as President of Ventures  West  Management  Ltd., a venture
capital firm which he joined as an Executive Vice President in January 1991. Mr.
Louis earned a Bachelor of Science  degree and a Master's of Science degree from
the University of Victoria,  British Columbia, Canada and a Doctorate in Physics
from the University of British Columbia, Canada.

     STEVEN M. GORDON has served as a director  since  November 2000. Mr. Gordon
currently serves as Executive Vice President  Administration and Chief Financial
Officer to Casey  Foundation.  Prior to Casey  Foundation,  Mr. Gordon served as
Strategic Advisor to Wavelink  Corporation from March 2001 to September 2001, as
Vice  President of Microsoft  Corporation  from January 2000 to August 2000,  as
Senior Vice  President and Chief  Financial  Officer of Visio  Corporation  from
February 1997 to January 2000, as Vice President and Chief Financial  Officer of
Data I/O  Corporation  from October 1993 to February  1997,  as Vice  President,
Finance of Data I/O  Corporation  from May 1992 to October 1993 and as Corporate
Controller of Data I/O Corporation from April 1989 to May 1992. Mr. Gordon holds
a Bachelor of Arts degree from Washington State University.

     CHRISTOPHER  LOCHHEAD has served as a director  since  November  2001.  Mr.
Lochhead  co-founded   Lochhead   Corporation  in  January  2002,  a  management
consulting  firm and has served as its Chief  Executive  Officer  since  January
2002. Prior to Lochhead Corporation, Mr. Lochhead served as a part-time advisor,
board member and management  consultant from January 2001 to January 2002. Prior
to this, Mr. Lochhead served as the Chief Marketing  Officer of Scient Corp., an
internet  consulting  firm from April 1998 to December  2000, as Executive  Vice
President of Vantive Corp.,  a customer  relationship  management  software firm
from June 1996 to April  1998,  as  President  and Chief  Executive  Officer for
Always an Adventure  International from December 1993 to June 1996, as Director,
Canada of Platinum  Software  Corp.  from  September  1991 to December  1993, as
Director Sales and Marketing of BMS Corp.  from December 1990 to September 1991,
as Director  Sales of Access  Experts from February 1990 to December 1990 and as
co-founder  and  partner of Roger  Pierce &  Associates  from  December  1987 to
January 1990.

     HOWARD GWIN has served as a director  since May 2002. Mr. Gwin is currently
an executive  management  consultant,  advising chief executive  officers in the
technology industry. Prior to being an executive management consultant, Mr. Gwin
served as a  Consultant  at Solect  Technology  Group,  a provider  of  billing,
customer care and service management software from May 2000 to December 2000 and
as President and Chief  Executive  Officer of Solect from February 2000 to April
2000.  Prior to Solect,  Mr. Gwin served as Executive Vice President,  Worldwide
Operations  at  Peoplesoft,  Inc.  from February 1999 to January 2000, as Senior
Vice



                                      -84-
<PAGE>

President,  International  from January 1998 to January 1999, as Vice President,
Europe  from  May  1996 to  December  1997 and as Vice  President,  Canada  from
September  1994 to May 1996.  Prior to  Peoplesoft,  Mr.  Gwin served as General
Manager of Strategic Operations of Xerox Corporation from October 1992 to August
1994.  Mr. Gwin holds a Bachelor of  Business  Administration  degree from Simon
Fraser University, of Burnaby, British Columbia.


ITEM 11. EXECUTIVE COMPENSATION

The following  table  describes the  compensation we paid to, or that was earned
by, our chief executive officer and our four most highly  compensated  executive
officers during the fiscal year ended June 30, 2002.

<TABLE>
                           SUMMARY COMPENSATION TABLE

                                                                                                 LONG TERM
                              ANNUAL COMPENSATION                                               COMPENSATION

--------------------------------------------------------------------------------------------------------------------------
                                                            OTHER        ALL                 AWARDS                PAYOUTS
NAME AND PRINCIPAL      YEAR      SALARY       BONUS        ANNUAL      OTHER
     POSITION                                               COMPEN-     COMPEN-
                                                            SATION      SATION
                                                                                 -----------------------------------------
                                                                                      RESTRICTED     SECURITIES     LTIP
                                                                                     STOCK AWARDS    UNDERLYING    PAYOUTS
                                                                                                      OPTIONS
--------------------------------------------------------------------------------------------------------------------------
<S>         <C>         <C>       <C>          <C>          <C>            <C>       <C>               <C>       <C>
Norman B. Francis       2002           --          --           --             --        --            15,000        --
 Former President and   2001    US$115,011*  US$12,940*         --             --        --            25,000        --
 Chief Executive
 Officer (1)
                        2000    US$118,949*  US$53,708*         --             --        --            25,000        --
--------------------------------------------------------------------------------------------------------------------------
Kent Roger (Bo)         2002    US$298,145*  US$118,161*        --             --        --         1,000,000        --
Manning
 President and Chief
 Executive Officer(2)
--------------------------------------------------------------------------------------------------------------------------
John O'Hara             2002    US$202,049** US$64,994**  US$17,319(4)** US$14,432**     --           125,000        --
 Executive Vice         2001    US$4,219**                                               --                          --
 President, EMEA(3)
--------------------------------------------------------------------------------------------------------------------------
Robert Douglas          2002    US$170,236*  US$88,496*         --             --        --           300,000        --
 Executive Vice
 President, North
 American Sales and
 Operations (5)
--------------------------------------------------------------------------------------------------------------------------
Joseph H. Dworak        2002    US$190,737   US$78,385          --             --        --           125,000        --
 Senior Vice
 President,
 North American
 Services (6)
--------------------------------------------------------------------------------------------------------------------------
James R. Warden         2002    US$170,000   US$135,405         --             --        --            70,000         --
 Senior Vice            2001    US$133,750   US$54,580          --             --        --            10,000         --
 President, Asia
 Pacific and Latin
 America
                        2000    US106,250    US$127,713         --             --        --            10,000         --
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

*    Compensation  originally denominated in Canadian dollars has been converted
     using the average  exchange rate during the year being  1.5686,  1.5216 and
     1.4706 for the years ended June 30, 2002, 2001 and 2000, respectively.

**   Compensation  originally  denominated  in British pounds has been converted
     using the average exchange rate during the year being 1.44321.

(1)  Mr. Francis resigned as President and Chief Executive Officer on August 27,
     2001. Mr. Francis did not draw a salary in fiscal 2002.
(2)  Mr. Manning was appointed  President and Chief Executive  Officer on August
     27, 2001.
(3)  Mr. O'Hara commenced employment on June 25, 2001.
(4)  Represents Mr. O'Hara's car allowance.
(5)  Mr. Douglas' salary is from October 23, 2001 to June 30, 2002.
(6)  Mr. Dworak's salary is from October 23, 2001 to June 30, 2002.

OPTION GRANTS IN LAST FISCAL YEAR

The following  table provides  information  regarding stock option grants to our
chief executive officer and our named executive  officers during the fiscal year
ended June 30, 2002. The potential realizable value of the options is calculated
based on the assumption that


                                      -85-
<PAGE>

the common shares appreciate at the annual rate shown, compounded annually, from
the date of  grant  until  the  expiration  of their  term.  These  numbers  are
calculated based on Securities and Exchange  Commission  requirements and do not
reflect  our  projection  or estimate of future  share price  growth.  Potential
realizable values are computed by:

     o    multiplying  the number of common shares  subject to a given option by
          the exercise  price;

     o    assuming that the aggregate share value derived from that  calculation
          compounds  at the  annual  5% or 10% rate  shown in the  table for the
          entire term of the option; and

     o    subtracting from that result the aggregate option exercise price.

<TABLE>
                                                  INDIVIDUAL GRANTS
                          -------------------------------------------------------------
                                             % OF TOTAL                                         POTENTIAL REALIZABLE VALUE AT
                              NUMBER OF        OPTIONS                                          ASSUMED ANNUAL RATES OF SHARE
                             SECURITIES      GRANTED TO        EXERCISE                      PRICE APPRECIATION FOR OPTION TERM
                             UNDERLYING     EMPLOYEES IN       PRICE PER   EXPIRATION   ----------------------------------------
       NAME                    OPTIONS       FISCAL YEAR         SHARE        DATE                5%                     10%
------------------        --------------- ----------------  ------------- ------------- ---------------------- -----------------
<S>                       <C>             <C>               <C>               <C> <C>   <C>                    <C>
Kent Roger (Bo) Manning   500,000         11.92%            $7.93        Aug. 27, 2011  $2,493,567             $6,319,189
                          250,000         5.96%             $3.03        Nov. 1, 2011   $476,388               $1,207,260
                          250,000         5.96%             $6.35        Feb. 1, 2012   $998,370               $2,530,066
Norman B. Francis         15,000          0.36%             $3.829       Nov.16, 2011   $36,120                $91,537
John O'Hara               50,000          1.19%             $10.25       Jul. 27, 2011  $322,308               $816,713
                          75,000          1.79%             $3.91        Oct. 26, 2011  $184,423               $467,365
Robert Douglas            300,000         7.15%             $3.91        Oct. 26, 2011  $737,693               $1,869,460
Joseph Dworak             125,000         2.98%             $3.91        Oct. 26, 2011  $307,372               $778,942
James R. Warden           20,000          0.48%             $10.25       July 27, 2011  $128,923               $326,717
                          50,000          1.19%             $3.91        Oct. 26, 2011  $122,949               $311,577
</TABLE>

AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END VALUES

The following  table provides  information  regarding the exercise of options to
purchase  common shares by our Named  Executive  Officers during the fiscal year
ended June 30, 2002. The value of unexercised  in-the-money  options is based on
the closing price of our common shares on the Nasdaq  National Market on July 2,
2002 of $3.75, minus the exercise price per share.

              AGGREGATED OPTIONS EXERCISED DURING 2002 FISCAL YEAR
                      AND FINANCIAL YEAR-END OPTION VALUES
                      ------------------------------------

<TABLE>
                                                                     NUMBER OF SECURITIES                 VALUE OF UNEXERCISED
                                                                    UNDERLYING UNEXERCISED               IN-THE-MONEY OPTIONS AT
                                                                  OPTIONS AT FISCAL YEAR-END                 FISCAL YEAR-END
                                                                  --------------------------                 ---------------
                          SHARES ACQUIRED     VALUE
       NAME                 ON EXERCISE      REALIZED        EXERCISABLE     UNEXERCISABLE        EXERCISABLE      UNEXERCISABLE
------------------        --------------------------------   -----------------------------------  ----------------- ----------------
<S>                       <C>                  <C>           <C>              <C>                 <C>               <C>
Kent Roger (Bo) Manning   0                    0             199,700          800,300             $22,500           $157,500
Norman B. Francis         0                    0             69,725           43,125              $0                $0
John O'Hara               0                    0             9,375            115,625             $0                $0
Robert Douglas            0                    0             50,000           250,000             $0                $0
Joseph Dworak             0                    0             0                125,000             $0                $0
James Warden              0                    0             18,000           78,750              $0                $0
------------------------
</TABLE>

DIRECTOR COMPENSATION

We do not currently pay cash  compensation to directors for serving on our board
of  directors,  but we do reimburse  directors  for  out-of-pocket  expenses for
attending  board  and  committee   meetings.   We  do  not  provide   additional
compensation for committee  participation or special assignments of the board of
directors.  Of our directors,  Messrs.  Manning,  Francis, Wales, Jaech, Gordon,
Lochhead and Gwin received stock options for their participation on our board of
directors  for the year ended June 30, 2002.  Mr.  Manning  received  options to
purchase  500,000  common  shares  at a price of $7.93  per  share,  options  to
purchase  250,000  common  shares at a price of $3.03 per share and  options  to
purchase 250,000 common shares at a price of $6.35 per share.  Messrs.  Francis,
Wales,  Jaech and Gordon received  options to purchase 15,000 common shares at a
price of $3.829 per share.  Mr.  Lochhead  received  options to purchase  40,000
common  shares at a price of $4.150  per share.  Mr.  Gwin  received  options to
purchase 40,000 common shares at a price of $4.93 per share.

EMPLOYMENT CONTRACTS

We entered into an  employment  contract  with Kent Roger (Bo) Manning on August
22,  2001.  Mr.  Manning's  current base salary is  US$350,000  with a potential
incentive compensation of US$300,000.  Mr. Manning's salary is reviewed annually
by the  Compensation  Committee of the board of directors.  Mr. Manning was also
granted  1,000,000  options to purchase common shares and is eligible to receive
further grants in the future.



                                      -86-
<PAGE>

We entered into an  employment  contract  with John O'Hara on June 5, 2001.  Mr.
O'Hara's   current  base  salary  is  US$202,049  with  a  potential   incentive
compensation  of US$144,321.  Mr.  O'Hara's  salary is reviewed  annually by the
Compensation  Committee.  Mr. O'Hara was also granted 50,000 options to purchase
common  shares in  Pivotal  and is  eligible  to receive  further  grants in the
future.  Unde3r the terms of Mr. O'Hara's  employment  contract,  should Pivotal
choose to terminate Mr. O'Hara's employment within the first two years,  Pivotal
would  have to pay  certain  amounts by way of  severance  which  could  exceed
US$100,000.

We entered into an employment  contract with Robert  Douglas on October 21, 2001
Mr.  Douglas'  current  base salary is  US$250,000  with a  potential  incentive
compensation  of US$175,000.  Mr.  Douglas'  salary is reviewed  annually by the
Compensation Committee. Mr. Douglas was also granted 300,000 options to purchase
common  shares in  Pivotal  and is  eligible  to receive  further  grants in the
future.

We entered into an  employment  contract with Joseph Dworak on October 19, 2001.
Mr.  Dworak's  current  base salary is  US$275,000  with a  potential  incentive
compensation  of US$125,000.  Mr.  Dworak's  salary is reviewed  annually by the
Compensation Committee.  Mr. Dworak was also granted 125,000 options to purchase
common  shares in  Pivotal  and is  eligible  to receive  further  grants in the
future.

We entered into an employment  contract  with James Warden on May 18, 1999.  Mr.
Warden's   current  base  salary  is  US$170,000  with  a  potential   incentive
compensation  of US$220,000.  Mr.  Warden's  salary is reviewed  annually by the
Compensation  Committee.  Pursuant to the employment  contract entered in by Mr.
Warden in May 1999,  Mr.  Warden  was  granted  10,000  options.  Subsequent  to
entering into this agreement, Mr. Warden has received and is eligible to receive
further grants in the future at the discretion of our board of directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No  interlocking   relationships   exist  between  our  board  of  directors  or
compensation  committee and the board of directors or compensation  committee of
any other company, nor has any interlocking relationship existed in the past.

The  Compensation  Committee  of the board of  directors  currently  consists of
Jeremy A. Jaech,  Robert J. Louis and Howard Gwin. None of Mr. Jaech,  Mr. Louis
or Mr. Gwin is or was an employee or officer of Pivotal or its subsidiaries.



                                      -87-
<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table provides information  concerning the beneficial ownership of
our common shares as of August 1, 2002:

     o    our current  chief  executive  officer and our former chief  executive
          officer;

     o    our four most highly compensated executive officers;

     o    each of our directors;

     o    each shareholder that we are aware  beneficially  owns more than 5% of
          our  outstanding  common shares based upon  statements  filed with the
          Securities and Exchange Commission pursuant to sections 13(d) or 13(g)
          of the Securities and Exchange Act of 1934, as amended; and

     o    all our directors and executive officers as a group.

The principal  address of each of the individuals  identified  below is 224 West
Esplanade,  Suite 300, North Vancouver, BC, Canada V7M 3M6, except where another
address is listed.

<TABLE>
                                                                       NUMBER OF SHARES         PERCENT OF COMMON
       NAME AND ADDRESS OF BENEFICIAL OWNER                           BENEFICIALLY OWNED          SHARES OWNED
-------------------------------------------------                 ------------------------- ------------------
<S>                                                                   <C>                       <C>
Kent Roger (Bo) Manning (1)......................                           258,779                   1.07%
Norman B. Francis (2)............................                         2,042,575                   8.45%
Keith R. Wales (3)...............................                           953,925                   3.95%
Jeremy A. Jaech (4)..............................                            75,000                     *
Robert J. Louis (5)..............................                         1,559,458                   6.45%
Steven M. Gordon (6).............................                            15,000                     *
Christopher Lochhead.............................                             4,000                     *
Howard Gwin......................................                                 0                     *
John O'Hara (7) .................................                            22,009                     *
Robert Douglas (8) ..............................                            50,000                     *
Joseph H. Dworak.................................                             3,921                     *
James R. Warden (9) .............................                            25,499                     *
Ventures West Capital Limited (10)...............                         1,559,458                   6.45%
    280 -- 1285 West Pender Street
    Vancouver, BC V6E 4B1
All directors and executive officers as a group
(17 persons) (11)................................                          5,097,492                 21.09%
--------------

*    indicates less than one (1) percent.

(1)  Includes  258,779  shares  subject to options  exercisable  by Mr.  Manning
     within 60 days of August 1, 2002.

(2)  Includes (a) 400,800  shares held of record by The Francis  Family Trust, a
     family  trust for the benefit of Mr.  Francis and his three  children;  (b)
     697,143 shares held of record by Boardwalk Ventures Inc., a holding company
     owned 50% by Mr.  Francis  and 50% by his  spouse;  and (c)  75,975  shares
     subject to options  exercisable  by Mr. Francis within 60 days of August 1,
     2002.  This  information  is  derived  from a  Schedule  13G filed with the
     Securities and Exchange Commission by Mr. Francis on February 14, 2002.

(3)  Includes  (a) 378,572  shares held of record by Daybreak  Software  Inc., a
     holding  company  owned  solely by Mr.  Wales,  of which Mr. Wales has sole
     voting power; (b) 28,125 shares subject to options exercisable by Mr. Wales
     within 60 days of August 1, 2002. Mr. Wales disclaims  beneficial ownership
     of any shares held by his former spouse, Patricia Wales.

(4)  Includes  75,000 shares  subject to options  exercisable  within 60 days of
     August 1, 2002.

(5)  Includes  (a) 363,514  shares  held of record by Bank of  Montreal  Capital
     Corporation  which is managed by  Ventures  West  Management  TIP Inc.,  an
     entity wholly owned by Ventures West Capital Ltd.; and (b) 1,195,944 shares
     held of record by VW B.C. Technology  Investment Fund Limited  Partnership,
     of which  Ventures  West  Management  B.C.  Ltd.  is the  general  partner.
     Ventures West Management B.C. Ltd. is wholly owned by Ventures West Capital
     Ltd.  Mr.  Louis,  as President  of Ventures  West Capital  Ltd., a venture
     capital firm with  controlled  subsidiaries  which  include  Ventures  West
     Management  TIP Inc. and Ventures  West  Management  B.C.  Ltd.,  disclaims
     beneficial  ownership of such shares  except to the extent of his pecuniary
     interest.  Mr.  Louis claims that he does not have nor does he share in the
     control  of the  voting  and  investment  power  over  these  shares.  This
     information  is derived from a Schedule 13G filed with the  Securities  and
     Exchange
</TABLE>


                                      -88-
<PAGE>

<TABLE>

<S>   <C>
     Commission by Ventures West Capital Limited on January 30, 2002.

(6)  Includes 15,000 shares subject to an option  exercisable  within 60 days of
     August 1, 2002.

(7)  Includes  21,875 shares  subject to options  exercisable  within 60 days of
     August 1, 2002.

(8)  Includes  50,000 shares  subject to options  exercisable  within 60 days of
     August 1, 2002.

(9)  Includes  20,499 shares  subject to options  exercisable  within 60 days of
     August 1, 2002.

(10) Includes  (a) 363,514  shares  held of record by Bank of  Montreal  Capital
     Corporation  which is managed by  Ventures  West  Management  TIP Inc.,  an
     entity wholly owned by Ventures West Capital Ltd.; and (b) 1,195,944 shares
     held of record by VW B.C. Technology  Investment Fund Limited  Partnership,
     of which  Ventures  West  Management  B.C.  Ltd.  is the  general  partner.
     Ventures West Management B.C. Ltd. is wholly owned by Ventures West Capital
     Ltd.  Mr.  Louis,  as President  of Ventures  West Capital  Ltd., a venture
     capital firm with  controlled  subsidiaries  which  include  Ventures  West
     Management TIP and Ventures West Management B.C. Ltd., disclaims beneficial
     ownership of such shares  except to the extent of his  pecuniary  interest.
     This  information  is derived from a Schedule 13G filed with the Securities
     and Exchange  Commission  by Ventures  West Capital  Limited on January 30,
     2002.

(11) Includes  622,002 shares subject to options  exercisable  within 60 days of
     August 1, 2002.  Includes 8,759 shares and 13,750 shares subject to options
     exercisable  within 60 days of August  1, 2002 by Matt  Duncan,  who was an
     executive officer on August 1, 2002 but resigned on August 15, 2002.
</TABLE>


<TABLE>
EQUITY COMPENSATION PLAN INFORMATION

  ---------------------------------------------------------------------------------------------------------------------------
           Plan Category             Number of Securities to be      Weighted-average Exercise         Number of Securities
                                      Issued upon Exercise of          Price of Outstanding          remaining available for
                                   Outstanding Options, Warrants   Options, Warrants and Rights    future issuance under Equity
                                             and Rights                                           Compensation Plans (excluding
                                                                                                     securities reflected in
                                                                                                           column (a))
  ---------------------------------------------------------------------------------------------------------------------------
  <S>                                   <C>                             <C>                           <C>
  Equity compensation plans                 5,786,416(1)                    $11.42(1)                     1,734,831(1)
  approved by security
  holders(1))
  ---------------------------------------------------------------------------------------------------------------------------
  Equity compensation plans not                    --                           --                               --
  approved by security holders
  ---------------------------------------------------------------------------------------------------------------------------
  Total                                     5,786,416                       $11.42                        1,734,831
  ---------------------------------------------------------------------------------------------------------------------------

(1)  All equity  compensation plans are approved by shareholders and include the
     following:

     (a)  Incentive  Stock Option Plan: The Incentive Stock Option Plan includes
          compensation  plans  assumed in  connection  with the  acquisition  of
          Exactium Ltd. on June 2, 2000 and Simba Digital  Technologies  Inc. on
          June 26,  2000.  There  are 991  outstanding  options  under  the plan
          assumed in the Exactium acquisition,  with a weighted-average exercise
          price of $0.57. There are 187,854  outstanding  options under the plan
          assumed in the Simba  acquisition,  with a  weighted-average  price of
          $22.40.

     (b)  Employee  Stock  Purchase  Plan:  It is not  possible to disclose  the
          number of shares to be issued, as it is determined by employee payroll
          deductions  during  a  subscription  period.  It is  not  possible  to
          determine the weighted-average exercise price as the purchase price is
          defined as 85% of the lower of the fair market value at the  beginning
          or end of a subscription  period.  There are 746,333 shares  remaining
          available for future issuance under the Employee Stock Purchase Plan.
</TABLE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During the year ended June 30, 2001,  Pivotal loaned $250,000 to Vincent Mifsud,
the previous Chief Operating Officer, Chief Financial Officer and Executive Vice
President of Pivotal.  This loan was made while Mr.  Mifsud was still an officer
of  Pivotal,  was  non-interest  bearing  and was secured by shares of a private
company.  During the year ended June 30, 2002, Mr. Mifsud left the employment of
Pivotal and the shares  being held as security  were  subsequently  sold and the
proceeds of the sale, which were $250,000,  were paid to Pivotal as repayment in
full of the loan balance.



                                      -89-
<PAGE>

During the year ended June 30,  2001,  Pivotal  loaned  Cdn$124,000  to Andre J.
Beaulieu,  General  Counsel and  Assistant  Secretary  of Pivotal.  This loan is
non-interest bearing, unsecured and pursuant to an agreement dated May 29, 2002,
Cdn$16,890 of the loan has been repaid and the  outstanding  balance of the loan
will be repaid through future incentive bonuses payable to Mr. Beaulieu.

On October 1, 2001, Pivotal entered into a consulting agreement with Christopher
Lochhead. Mr. Lochhead was appointed to Pivotal's Board of Directors on November
27,  2001.  Pursuant  to the  consulting  agreement,  Pivotal  agreed to pay Mr.
Lochhead   $12,000  per  month  in  exchange  for  Mr.   Lochhead   providing  a
pre-determined  number of monthly  consulting  hours. Mr. Lochhead may charge an
additional  fee if the  pre-determined  number of  monthly  consulting  hours is
exceeded. During the year ended June 30, 2002, Pivotal paid Mr. Lochhead a total
of US$210,623 pursuant to this agreement.


                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  Financial Statements and Financial Statement Schedules

     1.   Index to Consolidated Financial Statements


                                                                         Page
          Independent Auditor's Report................................    52
          Consolidated Balance Sheets.................................    53
          Consolidated Statements of Operations.......................    54
          Consolidated Statements of Shareholders' Equity                 55
          Consolidated Statements of Cash Flows.......................    56
          Notes to Consolidated Financial Statements..................    57

                                                                         Page
     2.   Index to Financial Statement Schedules

          Schedule II - Valuation and Qualifying Accounts.............    81


(b)  Reports on Form 8-K

     Not Applicable

(c)  Exhibits

EXHIBIT  NO.        DESCRIPTION

  2.1(1)            Share Purchase  Agreement by and between  Pivotal and Pierre
                    Marcel,  Marc Bahda,  Bernard Wach and Other Shareholders of
                    Transitif S.A., dated December 3, 1999

  2.2(2)            Stock  Purchase  Agreement  among  Pivotal and  Industrial &
                    Financial  Systems AB and Eli Barak, Alon Hod and Tony Topaz
                    concerning  all of the Shares of Exactium  Ltd.  dated April
                    11, 2000

  2.3(3)            Share Purchase  Agreement among Pivotal and David Pritchard,
                    Kirk Herrington,  Michael  Satterfield,  Calvin Mah, VW B.C.
                    Technology Investment Fund, LP, Venrock Associates,  Venrock
                    Associates II, LP, Working Ventures Canadian Fund Inc., Bank
                    of Montreal Capital Corporation, Sussex Capital Inc. and the
                    Other Shareholders of Simba Technologies Inc. concerning all
                    of the Shares of Simba Technologies Inc. dated May 29, 2000

  3.1(4)            Memorandum and Articles

  4.1(4)            Specimen of common share certificate


                                      -90-
<PAGE>


  4.2(4)            Registration Rights (included in Exhibit 10.14)

  4.3(2)            Registration  Rights  Agreement dated June 2, 2000 (included
                    in Exhibit 2.2)

  4.4(3)            Registration  Rights Agreement dated June 26, 2000 (included
                    in Exhibit 2.3)

  4.5               Specimen of common share certificate as of August 17, 2000

#10.1(4)            Employee Share Purchase Plan

 10.2(4)            Lease dated as of July 18, 1997 between  Sodican (B.C.) Inc.
                    and Pivotal for premises located in North Vancouver, B.C.

 10.3(4)            Lease dated as of May 26, 1998 between Novo  Esplanade  Ltd.
                    and Pivotal for premises located in North Vancouver, B.C.

 10.4(4)            Lease(1)  dated as of December 14, 1998  between  B.C.  Rail
                    Ltd.  and Pivotal for premises  located in North  Vancouver,
                    B.C.

 10.5(4)            Lease(2)  dated as of December 14, 1998,  between B.C.  Rail
                    Ltd. and Pivotal  with respect to premises  located in North
                    Vancouver, B.C.

 10.6(4)            Lease  dated as of December  11,  1998  between The Plaza at
                    Yarrow Bay Inc.  (previously  Yarrow Bay Office III  Limited
                    Partnership) and Pivotal with respect to premises located in
                    Kirkland, Washington

 10.7(4)            Canadian Imperial Bank of Commerce  Cdn$2,000,000  Committed
                    Installment Loan dated March 18, 1998

 10.8(4)            Canadian Imperial Bank of Commerce  Cdn$3,000,000  Operating
                    Line of Credit dated March 18, 1998

 10.9(4)            Security  Agreement with Canadian  Imperial Bank of Commerce
                    dated for reference April 15, 1998

 10.10(4)           Contract  Relative  to Special  Security  under the Bank Act
                    between Canadian Imperial Bank of Commerce and Pivotal dated
                    April 30, 1998

 10.11(4)           Canadian  Imperial  Bank of  Commerce  Schedule  -  Standard
                    Credit Terms dated March 18, 1998

 10.12(4)           Canadian  Imperial  Bank of  Commerce  Schedule  -  Standard
                    Credit Terms dated March 18, 1998

#10.13(4)           Form of Indemnity  Agreement  between  Pivotal and directors
                    and officers of Pivotal

 10.14(4)           Investors' Rights Agreement dated January 15, 1999

 10.15(5)           Lease  dated  April  14,   2000  among   Deramore   Holdings
                    Limited(1), Pivotal Corporation (NI) Limited (2) and Pivotal
                    for premises located in Belfast, Northern Ireland

#10.16(5)           Employment  Agreement between Vince Mifsud and Pivotal dated
                    November 10, 1998

#10.17(6)           Exactium Ltd. 1999 Stock Option Plan


                                      -91-
<PAGE>

#10.18(7)           Simba Technologies Incentive Stock Option Plan, as amended

#10.19              Amended and Restated Incentive Stock Option Plan

 10.20(8)           Restated  Offer to Lease  dated  July 28,  2000  between  CB
                    Richard  Ellis  Limited and Pivotal with respect to premises
                    located in Vancouver, B.C.

 10.21(8)           First Amendment to Restated Offer to Lease dated October 16,
                    2000 between PCI  Properties  Corp. and Pivotal with respect
                    to premises located in Vancouver, B.C.

 10.22(8)           Second  Amendment  to Restated  Offer to Lease dated May 18,
                    2001 between PCI  Properties  Corp. and Pivotal with respect
                    to premises located in Vancouver, B.C.

 10.23(8)           Lease dated September 1, 2000 between Landgem Office I, Ltd.
                    (previously  Dallas  Office  Portfolio  L.P.)  and  Software
                    Spectrum CRM, Inc. for premises located in Dallas, Texas

 10.24(8)           Lease dated  December 19, 2000 between 485  Properties,  LLC
                    and Pivotal for premises located in Atlanta, Georgia

 10.25(8)           Lease dated as of November 24, 2000 between Scholl  Consumer
                    Products  Limited and Pivotal for premises located in Luton,
                    England

#10.26(8)           Employment  Agreement  between  Kent Roger (Bo)  Manning and
                    Pivotal dated August 22, 2001

 10.27(8)           Amendment No.1 dated June 19, 2001 to the Canadian  Imperial
                    Bank of  Commerce  Cdn$3,000,000  Operating  Line of  Credit
                    dated March 18, 1998

 10.28(8)           Amendment  No.2 dated July 3, 2001 to the Canadian  Imperial
                    Bank of  Commerce  Cdn$3,000,000  Operating  Line of  Credit
                    dated March 18, 1998

#10.29(9)           Consulting   Agreement  between  Lochhead   Corporation  and
                    Pivotal dated January 28, 2002

 10.30(10)          Loan Agreement  between  Canadian  Imperial Bank of Commerce
                    and Pivotal dated December 31, 2001

#10.31              Employment  Agreement  between John O'Hara and Pivotal dated
                    June 5, 2001

#10.32              Employment  Agreement  between  Robert  Douglas  and Pivotal
                    dated October 21, 2001

#10.33              Employment  Agreement  between Joe Dworak and Pivotal  dated
                    October 19, 2001

#10.34              Employment  Agreement between James Warden and Pivotal dated
                    May 18, 1999

 10.35              Lease Amendment  Agreement made as of April 22, 2002 between
                    354875  B.C.  Ltd.  and  Pivotal  with  respect to  premises
                    located in North Vancouver, B.C.

 10.36              Modification  of Lease dated  January 8, 2002  between  B.C.
                    Rail Ltd. and Pivotal

 10.37              Sub-lease  dated  September 19, 2001 between The H.W. Wilson
                    Company Inc. and Pivotal with respect to premises located in
                    Dublin, Republic of Ireland

 10.38              Sub-lease  dated August 18, 2000  between  Dunsmuir & Hornby
                    Ltd.  and  Pivotal  with  respect  to  premises  located  in
                    Vancouver, B.C.

 10.39              Lease  Extension  dated October 30, 2001 between  Dunsmuir &
                    Hornby Ltd. and Pivotal with respect to premises  located in
                    Vancouver, B.C.

 10.40              Lease made May 7, 2000 between  1102758  Ontario Limited and
                    Pivotal with respect to premises located in Toronto, ON


                                      -92-
<PAGE>

#10.41              Loan Agreement  made as of January 29, 2001 between  Pivotal
                    and Andre Beaulieu

#10.42              Amendment  of Loan  Agreement  dated  May 29,  2002  between
                    Pivotal and Andre Beaulieu

 10.43              Sub-lease  dated August 29, 2000 between  Pivotal and Primus
                    Telecommunications  (Canada)  Inc.  with respect to premises
                    located in Vancouver, B.C.

 10.44              Amendment  of Lease  Extension  dated April 29, 2002 between
                    Pivotal  and  Dunsmuir  and  Hornby  Ltd.  with  respect  to
                    premises located in Vancouver, B.C.

 21.1               Subsidiaries of Pivotal

 23.1               Consent of Deloitte & Touche

 24.1               Powers of Attorney (included on signature page)

 99.1               Certification of Chief Executive Officer pursuant to Section
                    906 of the Sarbanes-Oxley Act of 2002

 99.2
                    Certification of Chief Financial Officer pursuant to Section
                    906 of the Sarbanes-Oxley Act of 2002
---------------

#    Indicates management contract or compensatory plan or arrangement.
(1)  Incorporated by reference to Pivotal's Form 8-K filed on January 25, 2000.
(2)  Incorporated by reference to Pivotal's Form 8-K filed on June 19, 2000.
(3)  Incorporated by reference to Pivotal's Form 8-K filed on July 11, 2000.
(4)  Incorporated by reference to Pivotal's  Registration  Statement on Form F-1
     (No. 333-82871).
(5)  Incorporated  by reference to Pivotal's  Annual Report on Form 10-K for the
     year ended June 30, 2000.
(6)  Incorporated by reference to Pivotal's  Registration  Statement on Form S-8
     (No. 333-39922).
(7)  Incorporated by reference to Pivotal's  Registration  Statement on Form S-8
     (No. 333-42460).
(8)  Incorporated  by reference to Pivotal's  Annual Report on Form 10-K for the
     year ended June 30, 2001.
(9)  Incorporated  by reference to Pivotal's  Quarterly  Report on Form 10-Q for
     the quarter ended December 31, 2001.
(10) Incorporated  by reference to Pivotal's  Quarterly  Report on Form 10-Q for
     the quarter ended March 31, 2002.



                                      -93-
<PAGE>


                                   SIGNATURES

     Registrant.  Pursuant  to the  requirements  of  Section 13 or 15(d) of the
Securities  Exchange Act of 1934,  the Registrant has duly caused this report to
be signed on its  behalf  by the  undersigned,  thereunto  duly  authorized,  in
Vancouver, British Columbia, Canada, on August 28, 2002.

                                     PIVOTAL CORPORATION
                                     (Registrant)


                                     By: /s/ Kent Roger (Bo) Manning
                                         -------------------------------------
                                         Kent Roger (Bo) Manning
                                        (President and Chief Executive Officer)




                                      -94-
<PAGE>

                               POWERS OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS,  that each person whose  signature  appears
below  constitutes  and appoints Kent Roger (Bo) Manning and Divesh  Sisodraker,
and each of them, his true and lawful  attorneys-in-fact  and agents,  with full
power of substitution  and  resubstitution,  for him and in his name,  place and
stead, in any and all capacities, to sign any and all amendments to this Report,
and to file  the  same,  with  all  exhibits  thereto  and  other  documents  in
connection therewith, with the Securities and Exchange Commission, granting unto
said  attorneys-in-fact and agents and each of them, full power and authority to
do and perform each and every act and thing  requisite  and necessary to be done
in and about the  premises,  as fully to all intents and purposes as he might or
could do in person,  hereby ratifying and confirming all said  attorneys-in-fact
and agents of them or their substitute or substitutes,  may lawfully do or cause
to be done by virtue thereof.

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the date(s) indicated.


SIGNATURE                                  TITLE                    DATE
---------                                  -----                    ----


/s/ Kent Roger (Bo) Manning       President, Chief Executive    August 28, 2002
----------------------------      Officer and Director
Kent Roger (Bo) Manning



/s/ Divesh Sisodraker             Chief Financial Officer       August 28, 2002
----------------------------
Divesh Sisodraker


/s/ Keith R. Wales                Director                      August 28, 2002
----------------------------
Keith R. Wales


/s/ Norman B. Francis             Director                      August 28, 2002
----------------------------
Norman B. Francis


/s/ Jeremy A. Jaech               Director                      August 28, 2002
----------------------------
Jeremy A. Jaech


/s/ Christopher Lochhead          Director                      August 28, 2002
----------------------------
Christopher Lochhead


/s/ Robert J. Louis               Director                      August 28, 2002
----------------------------
Robert J. Louis


/s/ Steven M. Gordon              Director                      August 28, 2002
----------------------------
Steven M. Gordon


/s/ Howard Gwin                   Director                      August 28, 2002
----------------------------
Howard Gwin






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