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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

Form 10-K

|   |  |                                                                                         
|-- |  | ----------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|   |  | For the fiscal year ended June 30, 2003                                                 
|  
|OR
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|   |  | For the transition period from

to                                                      

Commission File Number 000-26867

Pivotal Corporation

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

SUITE 700  858 BEATTY STREET
VANCOUVER, BRITISH COLUMBIA
CANADA
V6B 1C1(Address of Principal Executive Offices, Including Zip Code)

(604) 699-8000(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   þ No   o

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: o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act): Yes   o     No   þ



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|                   |                                                                                              |  |  |  |  |  |  | 
|------------------ | -------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|                   | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                         
|                   | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|                   | ITEM 9A. CONTROLS AND PROCEDURES                                                            
|PART III          
|                   | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                 
|                   | ITEM 11. EXECUTIVE COMPENSATION                                                             
|                   | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                     
|                   | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                     
|PART IV           
|                   | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                    
|SIGNATURES        
|POWERS OF ATTORNEY
|Exhibit 10.47     
|Exhibit 10.48     
|Exhibit 21.1      
|Exhibit 23.1      
|Exhibit 31.1      
|Exhibit 32.1      



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The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant, based on the closing sale price of the common
shares as reported on the Nasdaq National Market on December 31, 2002 (the last
business day of the registrants most recently completed second fiscal quarter)
was approximately U.S.$12,825,281. Common shares held by each executive officer
and director and by each person who was known by the registrant to own 5% or
more of the outstanding common shares were excluded from this computation in
that such persons may have been deemed to be affiliates of the registrant. This
determination of affiliate status is not a conclusive determination for other
purposes.

As of August 29, 2003, 26,232,739 common shares of the registrant were
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Not Applicable.





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TABLE OF CONTENTS

|         |  |                                                                                      |  |  |    | 
|-------- |  | ------------------------------------------------------------------------------------ |  |  | -- | 
|PART I   |  |                                                                                      |  |  | 1  | 
|ITEM 1.  |  | BUSINESS                                                                             |  |  | 1  | 
|ITEM 2.  |  | PROPERTIES                                                                           |  |  | 33 | 
|ITEM 3.  |  | LEGAL PROCEEDINGS                                                                    |  |  | 33 | 
|ITEM 4.  |  | SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS                                    |  |  | 33 | 
|PART II  |  |                                                                                      |  |  | 33 | 
|ITEM 5.  |  | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS                |  |  | 33 | 
|ITEM 6.  |  | SELECTED FINANCIAL DATA                                                              |  |  | 36 | 
|ITEM 7.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION |  |  | 38 | 
|ITEM 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           |  |  | 54 | 
|ITEM 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          |  |  | 56 | 
|ITEM 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE |  |  | 87 | 
|ITEM 9A. |  | CONTROLS AND PROCEDURES                                                              |  |  | 87 | 
|PART III |  |                                                                                      |  |  | 87 | 
|ITEM 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                   |  |  | 87 | 
|ITEM 11. |  | EXECUTIVE COMPENSATION                                                               |  |  | 90 | 
|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                       |  |  | 92 | 
|ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                       |  |  | 94 | 
|PART IV  |  |                                                                                      |  |  | 95 | 
|ITEM 15. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                      |  |  | 95 | 





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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.

Our products are used in 44 countries and are available in English, French,
German, Spanish, Portuguese, Japanese, Chinese and Hebrew. More than 1,600
companies around the world have licensed Pivotal including: CIBC World Markets,
Centex Homes LLC, Farm Credit Services of America, HarperCollins Publishers
Inc., Hitachi Telecom Inc., Palm, Inc., Pharmacia Corporation, Premera Blue
Cross, Royal Bank of Canada, Sharp Electronics Corporation, Southern Company
and WebEx Communications Inc. 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 Suite 700  858 Beatty Street, Vancouver, British
Columbia, Canada V6B 1C1, and our telephone number is (604) 699-8000. 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. During fiscal 2000, we completed the acquisitions of
Transitif S.A., a French corporation which distributed customer relationship
management solutions; Exactium Ltd., which provided e-selling solutions for
Internet and Microsoft standards; and Simba Digital Technologies Inc. During
fiscal 2001, we completed the acquisitions of Ionysys Technology Corporation,
which provided consulting and implementation services related to Internet
solutions; Project One Business Technologies Inc., which provided consulting
and implementation services specifically designed for the health care industry;
Software Spectrum CRM, Inc. which delivered solutions and consulting expertise
in multi-channel contact centers and customer relationship management;
and Inform Inc., which specialized in implementation services for the financial
services industry. During fiscal 2003, we acquired MarketFirst Software, Inc.,
which provided technology to help companies automate their marketing processes.

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

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British Columbia, Canada; Nihon Pivotal K.K., incorporated in Japan; Pivotal
Bangalore Software Development Private Limited, incorporated in India; and
MarketFirst Software, Inc. incorporated in the State of Delaware.

Pivotal CRM Suite, Pivotal 5, Pivotal Sales,
Pivotal Sales  Miller Heiman
Edition, Pivotal Assisted Selling, Pivotal Wireless for Sales, Pivotal Sales
Analytics, Pivotal MarketFirst, 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 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 April 29, 2003, we announced the general availability of Pivotal 5. Pivotal
5 is built on a highly flexible, meta-data driven architecture, with a robust
set of CRM capabilities. Pivotal 5 features a new product for complex solution
selling, integrated marketing automation capabilities via Pivotal MarketFirst,
a new user interface and major improvements across the platform to increase
usability, enhance speed-to-customization and improve productivity.

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:

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| |  |  | Web Services.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. These
standards create the possibility of new enterprise architectures focused
less around individual applications and more on a federated model
combining applications, possibly under a separate user interface.                                                                                                                                                                
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Widespread Adoption of Microsoft Technologies. Microsoft Windows
Servers and Microsoft .NET platforms offer businesses the opportunity to
develop, deploy and maintain information technology systems with
increased flexibility on a cost-effective basis. These platforms are
also widely used and well understood by technical personnel. With
Microsoft Commerce Server, Share Point Server, Content Management
Server, and BizTalk Server available, plus the upcoming Real-Time
Communication Server, Microsoft is delivering a rich and cost-effective
application development platform to support the requirements for
integration, application customization and flexibility, document
exchange, and communication.
|
| |  |  | Improvements in Microsoft Application Development Tools.As
Microsofts Servers and related tools (specifically Visual Studio)
become richer, there is a risk that they will overlap with the
capabilities of the Pivotal Toolkit, as well as an opportunity to
leverage the improved Microsoft tools to gain a productivity advantage
over multi-platform competitors.                                                                                                                                                                                                                                                                                                                                                      
|
| |  |  | Rich Clients.From the perspectives of usability and development
productivity, the browser is a less effective medium than a rich client.
Microsoft WinForms is an available, but not yet widely used, technology
designed to support rich clients with the deployment benefits of a
browser based application.                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  |  | 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 we are
strongly positioned to deliver meaningful results to mid-sized enterprises.

We believe our approach, product architecture and business implementation
methods appeal to the requirements of mid-sized enterprises, meaning our
products can be easily customized, quickly integrated with current systems and
business processes, and rapidly deployed to provide increases in revenues,
margins and customer loyalty.

We also believe that mid-sized enterprises require options to help them start
small and grow powerful with CRM. We believe that mid-sized enterprises
require more flexibility in pricing and software delivery options such as
hosted solutions; rapid deployment options to get them up and running quickly;
risk-sharing agreements and pilot programs to mitigate risk; and pre-integrated
marketing, sales, service and partner modules to ensure theres a clear path to
expanding the CRM initiative when required.

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, Microsoft Windows XP, Microsoft Windows Server, Microsoft BackOffice,
Microsoft .NET server platforms and Oracle databases.

Our services are designed to implement Customer Relationship Management in a
manner that sets, tracks and delivers achievable business results. Our 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.

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We believe that our partners are well suited to address the mid-sized
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-sized enterprise, and ensure
achievable business results are delivered rapidly and professionally.

We believe that our business style mirrors the way that the mid-sized
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
collaborative relationship contracts. As a result, we believe that the cost of
our 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
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:



| |  |  | 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.               
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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.                                                                                                                                                                                                                                                                                                         
|
| |  |  | 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.                                                                                                                                                                                                                                                                                                                                                                
|
| |  |  | 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/Capital Markets, Private Banking,
Asset Management, Commercial Banking, Healthcare Insurance, Real
Estate/Construction and Life Sciences (Medical Device Manufacturing).
These industry-specific products allow businesses to immediately gain
business benefits as we have already done the industry-specific
customizations.

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| |  |  | Yield a Low Total Cost of Ownership. Our products can be
cost-effectively deployed and customized and thus require few customer
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.                                
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Scale With the Growing Needs of Our Customers. Many of our customers
require that our products support their growing number of employees,
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.                                                                                                                         
|
| |  |  | 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 serving
mid-sized enterprises. We will continue to invest in product and technology
innovation while also lowering the overall solution cost and providing more
flexibility for customers as they consider how to start in CRM. The key
elements of our growth strategy are as follows:



| |  |  | Extend Application and Product Scope. We intend to continue the
development of our applications to add new functionality. On April 29,
2003, Pivotal introduced Pivotal 5 which features assisted selling,
comprehensive marketing automation functionality, new eService
capabilities, and significant platform enhancements to improve
flexibility, ease of customization, user productivity, and web services
enablement. We believe continued investments in our core products will
increase our competitiveness in new opportunities and increase our
cross-sell opportunities in our customer base. 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.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |   |  | We also intend to continue to develop industry products for specific
industry segments (micro-verticals) in high growth markets where we
believe we can cost effectively generate leads and enhance our product
differentiation. In fiscal 2003, we shipped seven Pivotal 5 compliant
micro-vertical products including Commercial Banking, Asset Management,
Private Banking, Capital Markets, Healthcare Insurance, Real
Estate/Construction, and Medical Device Manufacturing. We will continue to
develop and launch micro-verticals in other high growth markets.                                                                                                                                                                                                               
|
| |  |  | Further Innovate Service Offerings.We will continue to further
innovate our service offerings that we believe will help companies get
started with their CRM initiatives. We will also continue to develop our
services programs to help customers realize maximum value from their CRM
investment. These innovations include a hosted offering, a FastPath
program that allows customers to deploy an individual Pivotal module in
as little as 20 days, low-cost, India-based professional services, fixed
price contracts, and special risk/reward agreements. We believe that our
investment in services innovation will further improve our advantage and
create ways for the risk adverse mid-size enterprises to enter the CRM
market.                                          
|
| |  |  | Expand Development and Support Capabilities.In fiscal 2003, we
established a subsidiary in India where employees are employed in R&D,
Professional Services and Technical Support. This important investment
lowers the cost of these three critical functions while allowing us to
build highly competitive capabilities. We will continue to expand our
development and support presence in India as part of our strategy to
increase our R&D scale, build out our product line, and support our
global customer base.                                                                                                                                                                                                                                                               
|
| |  |  | Deepen Collaboration and Interaction Between Pivotal and Our
Customers. In fiscal 2003, Pivotal launched the Customer Office  a new
organization chartered for customer care and growth. We believe that
this organization, augmented by our Pivotal MarketFirst customer-enabled
marketing program, is a highly cost effective way to engage with our
customers, help ensure their success, and identify license and service
selling opportunities. We believe that this new program                                                                                                                                                                                                                                                                                                 

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| |   |  | will ensure higher levels of customer satisfaction, which leads to
increased product sales, and provides us with a more cost effective way to
identify and develop selling opportunities inside our customer base.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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.
|
| |  |  | 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 (hosting) providers to provide a
way for companies to optionally outsource their Pivotal products and
make monthly payments, reducing the total-cost-of-ownership by
eliminating the need to invest in communications and hardware
infrastructure. In addition, this alternative licensing arrangement
enables customers to pay a usage fee to access our software on servers
operated by the application service providers.                                                                                                                                                                                   

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 Assisted Selling, Pivotal
Wireless for Sales, Pivotal Sales Analytics, Pivotal Marketing, Pivotal
MarketFirst, (Campaign Portal, Lead Manager, Direct Marketing Manager,
Prospecting Assistant, Event Manager,) Pivotal Marketing Analytics, Pivotal
Service, Pivotal Contact Center, Pivotal eService, Pivotal Wireless for
Service, Pivotal Service Analytics, Pivotal ePartner, Pivotal Partner Manager,
Pivotal Partner Analytics, Pivotal Interactive Selling, Pivotal Quoter, Pivotal
Advisor, Pivotal Catalog, Pivotal eSales. 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.

The industry-vertical products include the following: Commercial Banking, Asset
Management, Private Banking, Capital Markets, Healthcare Insurance, Real
Estate/Construction, and Medical Device Manufacturing.

On April 29, 2003, we announced the general availability of Pivotal 5. Pivotal
5 is built on a highly flexible, meta-data driven architecture, with a robust
set of CRM capabilities. Pivotal 5 features a new product for complex solution
selling, integrated marketing automation capabilities via Pivotal MarketFirst,
a new user interface and major improvements across the platform to increase
usability, enhance speed-to-customization and improve productivity.

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:



| |  |  | Quote and Proposal Management
| | - |  | -----------------------------

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| |  |  | Consolidated Revenue Forecast        
| | - |  | -------------------------------------
|
| |  |  | Territory Management                 
|
| |  |  | Opportunity Management               
|
| |  |  | Team-Selling Enablement              
|
| |  |  | Best Practices Enablement            
|
| |  |  | Multi-Channel Sales Integration      
|
| |  |  | Product Configuration                
|
| |  |  | Guided Selling                       
|
| |  |  | Expense Management                   
|
| |  |  | Web-based Collaborative Services     
|
| |  |  | Up/Cross-Selling Automation          
|
| |  |  | Competitive and Industry Intelligence
|
| |  |  | Product & Service Catalog            

Core Applications of the Pivotal Sales Suite

Pivotal Salesenables 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 Editionis 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 Assisted Sellingis a new product (released April 29, 2003) that
combines sales automation, guided selling, complex quote creation and
price/product configuration in a single out-of-the-box application. Users can
quickly configure products and services with flexible and intuitive guided
selling capabilities, and then easily create, propose and automatically expire
multiple quotes per opportunity that contain up-to-date products, services and
pricing.

Pivotal Wireless for Salesenables 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 Analyticsis 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 and 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 featuring Pivotal MarketFirst is a comprehensive marketing
automation product designed for end-to-end management of multi-channel
campaigns and marketing processes. It reduces both the cost and time to create
smart, multi-wave, personalized campaigns and significantly increases the
ability to deliver better leads to the right sales resources at the right time.
Pivotal MarketFirst can be deployed either as a standalone solution, or as a
product tightly integrated with Pivotal 5  the companys newest CRM suite.
Pivotal MarketFirst also enables companies to optionally outsource their
marketing automation solution, reducing total-cost-of-ownership by eliminating
the need to invest in communications and hardware infrastructure. Core
capabilities of the Pivotal Marketing product suite include:



| |  |  | Campaign Management & Execution                                    
| | - |  | -------------------------------------------------------------------
|
| |  |  | Lead Capturing and Tracking                                        
|
| |  |  | Centralized Data Repository                                        
|
| |  |  | Forecasting: Campaign Impact, Market Shifts and Customer Perception
|
| |  |  | Customer Profiling & Analysis                                      
|
| |  |  | Event Management                                                   
|
| |  |  | ROI Calculation and Analysis                                       
|
| |  |  | Best Practices                                                     

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| |  |  | Data Mining                    
| | - |  | -------------------------------
|
| |  |  | Direct Mail Campaign Management
|
| |  |  | Collaborative Action Plans     
|
| |  |  | Marketing Automation           
|
| |  |  | List Management & Segmentation 

Core Applications of the Pivotal Marketing Suite

Pivotal MarketFirst Direct Marketing
Manager synchronizes a customers
marketing database, web site, and multi-channel communications to create a
segmented and targeted direct marketing program that delivers improved response
rates, higher quality leads and better brand building.

Pivotal MarketFirst Event Manager automates labor-intensive tasks associated
with Marketing events (including logistics, invitations, registration,
scheduling, lead management and budgeting) and facilitates the real-time follow
up that turns event attendees into sales leads.

Pivotal MarketFirst Lead Manager streamlines lead management, simplifying the
process of qualifying, managing, nurturing and tracking leads, thereby focusing
sales and improving both lead conversion and sales closure rates.

Pivotal MarketFirst Prospecting Assistant delivers consistent, accessible
marketing support to the sales team via a Web-based portal that takes the
burden off salespeople while accelerating the conversion of prospects to leads.

Pivotal MarketFirst Campaign Portal allows distributed marketing
organizations to work together more effectively and consistently in order to
launch targeted campaigns.

Pivotal Marketing Analyticsis 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 customers buying preferences, product
profitability and 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:



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

Core Applications of the Pivotal Service Suite

Pivotal Serviceis 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

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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 Centertransforms call centers 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 eServicehelps organizations to reduce the cost of service by giving
customers a self-service portal with one-click access to personalized
information; simple, easy-to-use self-service reports to keep track of orders,
incidents, contracts and service level agreements; quick product registration
capabilities; and full text search to help customers solve their problems
quickly. This new product, which was released on April 29, 2003, also
introduces a personalized message center that presents customers with alerts
and time sensitive information.

Pivotal Wireless for Serviceenables 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 that can be easily tailored to our
customers service employee needs, for increased productivity, immediate
response to incidents, management of service level agreements, increased
customer satisfaction and up-sell opportunities anytime in the field.

Pivotal Service Analyticsprovides 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 for 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:



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

Core Applications of the Pivotal Interactive Selling Suite

Pivotal eSalesenables 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 Configuratorcreates 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

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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 customers needs.

Pivotal eAdvisoris 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 Quotermanages the ability to automatically generate quotations and
proposals.

Pivotal Catalogmanages 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 our customers partners
to become collaborative members of their customers extended business team to
generate sales, deliver customer value, and keep customers satisfied, while
reducing the costs associated with managing those partners.

Pivotal Partner Management Suite has the following core features:



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

Core Applications of the Pivotal Partner Management Suite

Pivotal ePartneris a browser-based product that extends marketing, sales,
service and ordering capabilities to our customers business partners, enabling
them to become effective members of their 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 Manageris a comprehensive internal tool used to help manage
and enable partner relationships and operations. Pivotal Partner Manager
enables organizations to collaboratively sell, service and market to end
customers, and measure and reward the partner community.

Pivotal Partner Analyticsis 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, segment, or region, channel managers have the
knowledge and insight they need to make better business decisions.

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Pivotal Industry-Specific Products

We provide industry-specific products aimed at the financial services (capital
markets, private banking, commercial banking and asset management), healthcare
insurance, real estate/construction, and life sciences (medical device
manufacturing) markets.

Our solutions for financial services are designed to bring the right people and
information together at exactly the right moment  so that teams can make smart
decisions to win, keep and grow client relationships. We offer separate CRM
solutions for the following segments of the financial services market:



| |  |  | Pivotal Capital Marketsis a web-based solution designed to help
investment banks 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 Capital
Markets 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.                                                                                                                                                                                                                                                         
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Pivotal Private Bankingprovides tools and information that we
believe helps private banks win, keep and grow high value clients. It
features an intuitive desktop and one-click access to important client
information; client profiling tools; an allocation planner; a flexible
relationship model; action plans; team call planning tools; call
reporting functionality; and tools to integrate to legacy systems.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  |  | Pivotal Commercial Bankingenables users to consolidate, maintain,
and manage customer information in one centralized location. Based on
Pivotals three-tier, meta-data driven architecture, the Pivotal
solution features a smart desktop, one-click access to critical
information, and pre-configured workflow and business rules. It
integrates with existing legacy banking systems providing users with a
complete view of corporate client information and transaction history.
This product includes: client profiling tools that enable bankers to
build a comprehensive customer view with detailed information on
preferences, share of wallet, credit history, profitability ratings,
financial account portfolios, assets, and products and accounts held
with competing institutions; action plans; team call planning
capabilities; call reporting tools; and a flexible relationship model
that allows bankers to track all the different types of relationships
that can exist within a financial institution and between customers.
|
| |  |  | Pivotal Asset Managementgives asset managers the tools and
information that we believe helps them to deliver a higher level of
service to valuable customers, quickly recognize sales opportunities as
market conditions change, and increase share of wallet. It features an
intuitive desktop and one-click access to important client information;
client profiling tools; a flexible relationship model; an allocation
planner; action plans; team call planning tools; call reporting
functionality, and tools to integrate to legacy systems.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

Pivotal Healthcare Insurancedelivers a comprehensive set of products for
sales, marketing, underwriting, enrollment and renewal of individual and group
health insurance plans for Healthcare Payers and Third Party Administrators
(TPA) and their agents. It features three distinct products  Pivotal
Healthcare FrontOffice, Pivotal Healthcare eBroker, and Pivotal Healthcare
eEnrollment  that can be deployed separately to address immediate business
needs, or in combination as an end-to-end, tightly integrated solution. We
believe these products are uniquely designed to help healthcare insurance
companies automate and streamline business processes, deliver enhanced service
to all constituents, and improve profits, while ensuring a low
total-cost-of-ownership.



| |  |  | Pivotal Healthcare FrontOfficebrings powerful and easy-to-use
capabilities directly to employees in sales, marketing, underwriting and
operations, giving them the tools and information to manage all
processes from lead generation to contract creation. It features an
extensible plan library; data-driven benefit compatibility rules and
mandated plans management; an intuitive configurator for selecting plans
and riders; support for multiple rate structures, and multiple group
classifications; functionality to auto-assemble PDF-based proposal
packages; dynamic benefit summaries; and data-drive workflow tools. It
also lays the foundation for easier, more dependable renewals by
providing auto-renewal processing, alerting agents to the right
information at the right time.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Pivotal Healthcare eBrokeris designed with usability, productivity
and increased broker loyalty in mind by providing valuable self-service
tools to enhance broker effectiveness, improve collaboration, and
increase profits. It features online                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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| |   |  | quoting functionality; benefit configuration; rate calculation
capabilities; automated, PDF-based proposal generation; competitive
intelligence; and support for multiple rate structures, and multiple group
classifications. We believe that with this product, brokers can quickly
configure products, produce accurate, personalized quotes and proposals,
and manage their book of business in a more proactive and responsive way.                                                                                                                                                                                                                                                                                                           
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Pivotal Healthcare eEnrollmentreduces both the time and effort
required for agents and group administrators to enroll members by giving
them online enrollment capabilities in lieu of paper forms. This
intuitive, external-facing application guides agents, group
administrators and consumers through the complete enrollment process
step-by-step, including only the questions that are relevant for each
enrollee. The collected information is then automatically printed on
existing state-filed PDF forms for signing. We believe that this online
system not only enhances the enrollment experience for agents, group
administrators and enrollees, but it also eliminates errors by ensuring
that information is accurately collected.

Pivotal CRM Suite for Real Estate/Constructionprovides 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 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.

Pivotal Medical Device, the companys first product for the life sciences
market, delivers sales, marketing and service capabilities that helps medical
device and diagnostic test manufacturers effectively manage complaints, unify
customer information and interactions and increase sales visibility across
direct and indirect channels. Based on Pivotals three-tier, meta-data driven
architecture, it features a comprehensive complaint tracking system that we
believe helps these organizations follow and adhere to the strict FDA
requirements regarding how they must report and manage product complaints.

PRODUCT PRICING

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

PRODUCT AWARDS

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

|                              |  |               |  |                                                                                                        
|----------------------------- |  | ------------- |  | -------------------------------------------------------------------------------------------------------
|SPONSOR                       |  | DATE          |  | AWARD                                                                                                  
|                              |  |               |  |                                                                                                        
|CRM Magazine                  |  | August 2003   |  | CRM Market Leader                                                                                      
|                              |  |               |  |                                                                                                        
|ISM Inc.                      |  | February 2003 |  | Top 15 CRM Software Award                                                                              
|                              |  |               |  |                                                                                                        
|Microsoft                     |  | November 2002 |  | Best CRM Software Solution in France                                                                   
|                              |  |               |  |                                                                                                        
|Deloitte & Touche LLP         |  | October 2002  |  | Canadian Technology Fast 50                                                                            
|                              |  |               |  |                                                                                                        
|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 LLP         |  | November 2001 |  | Canadian Technology Fast 50                                                                            
|                              |  |               |  |                                                                                                        
|Deloitte & Touche LLP         |  | November 2001 |  | North American 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

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|                                                 |  |                |  |                                                                                                                                   
|------------------------------------------------ |  | -------------- |  | ----------------------------------------------------------------------------------------------------------------------------------
|SPONSOR                                          |  | DATE           |  | AWARD                                                                                                                             
|                                                 |  |                |  |                                                                                                                                   
|Deloitte & Touche LLP                            |  | November 2000  |  | North American Technology Fast 500                                                                                                
|                                                 |  |                |  |                                                                                                                                   
|Deloitte & Touche LLP                            |  | 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 Association |  | June 2000      |  | Company of the Year                                                                                                               
|                                                 |  |                |  |                                                                                                                                   
|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                                        
|                                                 |  |                |  |                                                                                                                                   
|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                                                                                                         

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.

We offer a complete set of services to address customer requirements across all
phases of their CRM initiatives. We attempt to offer services designed to meet
the budget, timeframe, risk profile, implementation needs, performance
requirements, integration needs and expansion plans of our customers.

Pivotal Professional Services programs include: Pivotal Hosting Services, for
offsite hosting of the Pivotal solution; Pivotal FastPath, for rapid
implementation of Pivotal Sales, Pivotal MarketFirst and Pivotal Service;
Pivotal MarketFirst Pilot Program, for a quick 20-day pilot of an online
marketing solution; Pivotal Upgrade Factory, for a rapid and proven upgrade
path that fits the customers unique business needs; and Pivotal Performance
Health Checks, for tuning and enhancing existing Pivotal Active Access or
Pivotal SyncStream solutions.

These services are offered through the following groups:



| |  |  | Business Consulting. 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.
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 fit 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                                                                                                                                                                                       

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| |   |  | 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 Group has the
flexibility to meet unique training requirements, and can 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 Services Group 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.                                                                                                                                                                                                                                                                                                                                                                                              

Substantially all of our business consulting services and integration services
are priced on a time and materials basis. On occasion, where we enter into
fixed-price service contracts, revenue is recognized by applying a proportional
performance method of accounting, which is based on the ratio of direct costs
incurred to the total estimated direct costs on the basis that we can make
reasonably dependable estimates of total costs to complete the engagement. 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 1,600
customers across a wide range of industries. Revenues from customers in North
America were $34.9 million, $36.7 million and $64.2 million, respectively;
representing 62%, 53%, and 67% of our total revenues, respectively, in the
years ended June 30, 2003, 2002, and 2001, respectively. Revenues from
customers in Canada were $1.9 million, $2.7 million and $11.4 million,
respectively; representing 3%, 4%, and 12% of our total revenues, respectively,
in the years ended June 30, 2003, 2002 and 2001. Revenues from customers in the
U.S. were $33.0 million, $34.0 million and $52.8 million, respectively;
representing 59%, 49%, and 55% of total revenues, respectively, in these same
years. Revenues from customers in Europe, Middle East and Africa were $17.4
million, $25.8 million and $23.7 million, respectively; representing 31%, 37%
and 25% of our total revenues, respectively, in the years ended June 30, 2003,
2002 and 2001. Revenues from customers in the Asia Pacific and Latin America
were $3.8 million, $7.1 million and $8.3 million, respectively; representing
7%, 10% and 8% of total revenues, respectively, in the years ended June 30,
2003, 2002 and 2001.

We have property and equipment in various geographic regions. Property and
equipment in the United States was $0.6 million, $1.0 million and $1.5 million,
respectively; representing 20%, 23% and 16% of total property and equipment,
respectively, at June 30, 2003, 2002 and 2001. Property and equipment in
Canada was $1.8 million, $1.9 million and $5.9 million, respectively;
representing 59%, 46% and 65% of total property and equipment, respectively, at
June 30, 2003, 2002 and 2001. Property and equipment held outside the U.S. and
Canada was $0.6 million, $1.3 million and $1.8 million, respectively;
representing for 21%, 31% and 19% of total property and equipment,
respectively, at June 30, 2003, 2002 and 2001.

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No single customer accounted for 10% or more of our consolidated revenues
during the years ended June 30, 2003, June 30, 2002 or June 30, 2001. Some of
our customers that purchased a minimum of $100,000 of software licenses from us
prior to June 30, 2003, are set forth in the table below:

|                                       |  |                                          |  |                                        
|-------------------------------------- |  | ---------------------------------------- |  | ---------------------------------------
|CONSULTING                             |  | MANUFACTURING                            |  | TECHNOLOGY                             
|                                       |  |                                          |  |                                        
|Burntsand Inc.                         |  | Foss Electric A/S                        |  | Centra Software                        
|KPMG SA                                |  | IMI Norgren Limited                      |  | Palm, Inc.                             
|KPMG Consulting AG                     |  | UOP, LLC                                 |  | Macrovision Corporation                
|KPMG Peat Marwick LLP                  |  | Fuji Photo Film (Malaysia)               |  | Documentum, Inc.                       
|Net-Commerce                           |  | James Hardie Industries Limited          |  | ProClarity Corporation                 
|Sapient Corporation                    |  | Newport Corporation                      |  | WebEx Communications Inc.              
|                                       |  | RS Components Ltd.,                      |  | Crystal Decisions Corporation          
|                                       |  | Siemens SAS                              |  | Compuware Asia-Pacific Pty. Ltd.       
|FINANCIAL SERVICES                     |  | Teknion Corporation                      |  | VERITAS Software Corporation           
|                                       |  | Toshiba Corporation                      |  | Somera Communications                  
|BoE Bank Limited                       |  | Wilo GmbH                                |  | Sharp Electronics                      
|Svenska Handelsbanken                  |  | Atlas Copco                              |  |                                        
|CIBC World Markets                     |  | Simkar Corporation                       |  |                                        
|Principal Financial Services, Inc.,    |  | Centex Homes                             |  | RETAIL                                 
|Visa International (Asia Pacific)      |  | Euro Steel (Pty) Ltd.,                   |  |                                        
|Dresdner RCM Global Investors (UK) Ltd |  |                                          |  | Wickes Building Supply Supplies Limited
|Farm Credit Services of America        |  |                                          |  | Warehouse Stationery                   
|Grantham, Mayo, Van Otterloo & Co. LLC |  | TELECOMMUNICATIONS                       |  |                                        
|The Principal Financial Group          |  |                                          |  |                                        
|Raymond James Ltd                      |  | Alcatel e-Business Distribution GmbH     |  |                                        
|The Bankers Bank                       |  | Belgacom France                          |  |                                        
|Bank Enteniel                          |  | FLAG Telecom Ltd.                        |  |                                        
|                                       |  | Hitachi Telecom (USA), Inc.              |  |                                        
|                                       |  |                                          |  |                                        
|HEALTH CARE/LIFE SCIENCES              |  | OTHER SERVICES                           |  |                                        
|                                       |  |                                          |  |                                        
|bioMérieux, Inc.                       |  | Miller Heiman, Inc.                      |  |                                        
|Pharmacia                              |  | United Business Media International Ltd. |  |                                        
|Gambro BCT Inc.,                       |  | Intrawest Corporation                    |  |                                        
|McKesson Corporation                   |  | Thomson Legal & Regulatory Group         |  |                                        
|NDC Health Information Services        |  | Xtra Corporation                         |  |                                        
|Mental Health Cooperative Inc.         |  | Televerde                                |  |                                        
|Kronos                                 |  | The Wynford Group                        |  |                                        
|                                       |  | Metropolitan Nashville Government and    |  |                                        
|                                       |  | Davidson County                          |  |                                        
|                                       |  | Enterprise Florida, Inc.                 |  |                                        

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, Australia and New Zealand. 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, 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. We conduct a significant amount
of our marketing efforts using online channels including web-based seminars,
online newsletters, and electronic direct mail (eDM), all using Pivotal
MarketFirst as the delivery and tracking mechanism. Additionally, we
participate in industry and analyst events and hold local events to better meet
the needs of prospects, partners, and customers around the world. We make
extensive use of the Internet to communicate with potential customers, existing
customers, partners and others. We also conduct comprehensive corporate
communications programs to establish and maintain our relationships with key
trade press, business press and industry analysts. We have a customer marketing
team targeted at working directly with our customers to obtain feedback and to

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track ongoing customer success stories. Together with the Customer Office this
team performs ongoing surveys on each customer to assess the customers
satisfaction with our products and to anticipate any further needs of the
customer.

We work closely with marketing partners in North America including the American
Marketing Association (AMA), RE Nolan, Microsoft, Intel, Miller Heiman, and
others to extend Pivotals brand awareness and market the Pivotal value
proposition. These marketing activities include joint web events, co-authored
business papers, and the creation and publication of other materials that are
of value to our customers and partners in making the decision to purchase a
Pivotal CRM solution.

STRATEGIC RELATIONSHIPS

Our partner strategy is focused on driving revenue
from our relationships  both for Pivotal and the partner organizations that are our valued partners.
Our partner strategy is designed to better serve our customers; broaden our
product offering; and extend our market reach. Together with our partners, we
develop, market, sell and deliver comprehensive Customer Relationship
Management solutions.

We work with services-based organizations that implement enterprise level
Pivotal products. These system integrators often operate in multiple geographic
locations, and have experience in working with mid-sized companies. These
organizations 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. In some
international geographies, we have appointed exclusive distributors (master
distributors), to provide coverage and presence where we have no direct sales
offices. In other geographies, such distributors may be non-exclusive. These
distributors may also be responsible for providing local language support and
product localisation, again to increase the coverage of our products worldwide.
These organisations have committed and dedicated Pivotal personnel, with
long-term business plans for developing successful and profitable Pivotal
business.

We also work with selected industry leaders in technology, intelligence,
applications and business services, including Oracle and Microsoft and Miller
Heiman.

KEY RELATIONSHIPS

MICROSOFT

We maintain a product development and business partnership with Microsoft. Our
relationship spans sales, marketing and customer support, and includes:



| |  |  | Technology Sharing We are a recognized leader in exploiting and
adopting Microsofts .Net initiative, and are highly involved in .Net
advanced product development. In return, we help 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 We leverage support from Microsofts
specialized competitive sales teams and consulting services to help win
deals in the marketplace. In return, we help 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, we joined the
Premier Support for Developers pilot program and played a key role in
helping it to evolve. We hold a board position on Premier Supports
exclusive Customer Council to make recommendations on enhancing and
improving Microsoft Premier Support.                                                              
|
| |  |  | International Partnership We have 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.                                                                                                                                                   

Microsoft has recently launched a competing product in the market for Customer
Relationship Management products. We believe that the Microsoft CRM package is
targeted toward the small business segment of the CRM market and therefore we
do not expect and have as yet not experienced significant competition to our
product, which is targeted toward the mid-sized enterprise segment. However,
there may be some overlap with the market for our products and we may in future
be faced with direct competition from Microsoft. See Risk Factors.

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INTEL

We have a global alliance with Intel 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 our commitment to
delivering business results/impact from Customer Relationship Management. Our
relationship with Intel includes:



| |  |  | Advanced Technology Intel extends our products with access to
advanced technology, such as innovative telephony products for call
centers. In return, we increase Intel revenues through sales of Intel
server processors, computer telephony and by supporting Intel
architecture.                                                                                                                                                                                                                   
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Advanced Architecture Intel validates our technology architecture
and platform, primarily through testing and knowledge transfer in the
areas of extensibility, reliability, scalability and availability. In
return, we help drive the adoption of advanced Intel technologies in the
marketplace. In fact, we are a major Intel independent software vendor
in the growing Customer Relationship Management market, with the
majority of our 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, we help Intel realize their goals by selling into companies
that traditionally support Sun products and services.                                                                                                                                                                                                                               

CAP GEMINI ERNST & YOUNG

In May 2001, we signed a strategic alliance agreement with Cap Gemini Ernst &
Young. With Cap Gemini Ernst &Young as our partner, 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. While we leverage Cap Gemini Ernst &Youngs global resource
base and brand recognition, we provide Cap Gemini Ernst &Young with further
access to the underserved and growing mid-size enterprise market for Customer
Relationship Management.

As part of our strategic alliance agreement, we committed to utilize a minimum
amount of Cap Gemini Ernst & Young services during fiscal 2001 and 2002.
Following our corporate restructuring in fiscal 2002, 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 wrote
off the remaining contractual obligation and included this charge in our cost
of revenues from services and maintenance in our fiscal 2002 financial
statements. Currently, although we do not derive significant revenues from this
relationship in the North American market, the relationship remains significant
in the European market.

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 Server 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.

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| |  |  | Internet Commerce Platform. Pivotal Assisted Selling, an electronic
sales tool 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. Although many
enterprise applications use metadata to some degree, we believe that the
degree to which we do it provides benefits that 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.                                                                                                                                                                                                                                                                                                                                                                          
|
| |  |  | Distributed Database Design. Our technology is designed to support
various databases that reside on multiple servers, including both
Microsoft SQL Server and Oracle. 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, 2003, there were 142
employees in our research and development department. On occasion and where
appropriate, we contract with third-party developers to expand the capacity of
our research and development department.

In October 2002, we opened a development center in Bangalore, India and
incorporated a wholly-owned Indian subsidiary. As of June 30, 2003, we had 51
full-time employees in India. We intend to continue increasing head count in
India over the next nine months. The Indian development center will primarily
perform software development to augment our North American development teams.
For the years ended June 30, 2003, 2002 and 2001, we spent approximately $16.4
million, $17.0 million and $18.8 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.

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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. Our
competitors include a number of companies that compete with us primarily within
a particular product line and/or the prospective customers industry. These
companies include: E.piphany, Inc.; JD Edwards & Company; Kana Software, Inc.;
Microsoft Corporation, ONYX Software Corporation, Siebel Systems, Inc.; and
Salesforce.com, Inc., among many others. In addition, our competitors include
several companies such as Oracle Corporation, PeopleSoft, Inc. and SAP AG that
compete in our product line.

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

Microsoft has recently launched a competing product in the market for Customer
Relationship Management products. We believe that the Microsoft CRM package is
targeted toward the small business segment of the CRM market and therefore we
do not expect and have as yet not experienced significant competition to our
product, which is targeted toward the mid-sized enterprise segment. However,
there may be some overlap with the market for our products and we may in future
be faced with direct competition from Microsoft. If Microsoft becomes our
direct 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.

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 or time-based 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.

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EMPLOYEES

As of June 30, 2003, we had a total of 433 employees, excluding independent
contractors and temporary employees. Of this number, 142 people were engaged in
research and development, 102 people were engaged in sales and marketing, 118
people were engaged in professional services and 71 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:



| |  |  | general economic conditions, which may affect our customers
capital investment levels in management information systems;                                                                                  
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | changes in the economy and foreign currency exchange rates;                                                                                                                                                
|
| |  |  | market acceptance of our solutions;                                                                                                                                                                        
|
| |  |  | the length and variability of the sales cycle for our solutions, which is typically highly variable;                                                                                                       
|
| |  |  | 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;
|
| |  |  | our ability to successfully maintain and expand our sales force and marketing programs;                                                                                                                    
|
| |  |  | increases in the cost of software and professional services;                                                                                                                                               
|
| |  |  | our ability to successfully expand our international operations;                                                                                                                                           
|
| |  |  | the introduction or enhancement of our solutions or our competitors solutions;                                                                                                                            
|
| |  |  | changes in our or our competitors pricing policies;                                                                                                                                                       
|
| |  |  | activities of and acquisitions by competitors;                                                                                                                                                             

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| |  |  | our ability to develop, introduce and market new solutions on a timely basis and control our costs;
| | - |  | ---------------------------------------------------------------------------------------------------
|
| |  |  | customer satisfaction and our reputation relating to our business products and services;           
|
| |  |  | the size and complexity of our license transactions; and                                           
|
| |  |  | the potential delays in recognizing revenue from license transactions.                             

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 and 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:



| |  |  | seasonal variations in operating results;                                 
| | - |  | --------------------------------------------------------------------------
|
| |  |  | variations in the fiscal or quarterly cycles of our customers;            
|
| |  |  | the discretionary nature of our customers purchase and budget cycles; and
|
| |  |  | 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
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 WHAT OUR FUTURE OPERATING RESULTS WILL BE.

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:



| |  |  | no history of profitable operations except for the quarters ended March 30, 1998 and June 30, 1998;
| | - |  | ---------------------------------------------------------------------------------------------------
|
| |  |  | uncertain market acceptance of our solutions;                                                      
|
| |  |  | our reliance on a limited number of solutions;                                                     

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| |  |  | the risks that competition, technological change or evolving customer preferences could adversely affect sales of our
solutions;                   
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our reliance on third parties to market, install, and support our solutions;                                                                       
|
| |  |  | our dependence on a limited number of key personnel;                                                                                               
|
| |  |  | our dependence on the adoption and success of the Microsoft .NET platform;                                                                         
|
| |  |  | 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;
|
| |  |  | 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
|
| |  |  | 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 what our future operating results will be.

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, 2003, we had an accumulated deficit of approximately $171.8
million. We have decreased our operating expenses in recent periods and
initiated restructuring plans during fiscal 2003 and the first quarter of
fiscal 2004, which we anticipate will result in a quarterly operating cost
structure of approximately $13.5 million for the quarter ending September 30,
2003. Our operating cost structure consists of costs of revenues and sales and
marketing, research and development, and general and administrative expenses.
We will continue to examine the level of operating expenses based on projected
revenues. Any planned increases in operating expenses may result in larger
losses in future periods if projected revenues are not achieved or if expense
reductions adversely impact our ability to generate revenues. 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.

To the extent that we continue to incur operating
losses, our customers and potential customers confidence in our
financial viability may be diminished, which would have a direct
adverse effect on our ability to generate revenues.

WE 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.

We initiated corporate restructuring activities during the years ended June 30,
2003 and 2002, which included workforce reductions of employees, consolidation
of excess facilities and restructuring of certain business functions. We
reduced our workforce in fiscal 2003 restructuring initiatives by approximately
130 employees or 23% of our total workforce worldwide and by approximately 200
employees or 26% of our total workforce worldwide in fiscal 2002 initiatives.
In July 2003, we announced a corporate restructuring undertaking to further
reduce our cost structure, which included workforce reductions of approximately
83 employees or 19% of our workforce. 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.
These workforce reductions have placed an increased burden on our
administrative, operational and financial resources and have 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, these headcount reductions 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

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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, 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.

TO BE SUCCESSFUL, WE MUST EFFECTIVELY COMPETE IN THE E-BUSINESS SYSTEMS
MARKET.

Our products target the e-business systems market. This market is highly
competitive, rapidly changing and significantly affected by new product
introductions and other market activities of industry participants. Our
products are targeted at the emerging market for eBusiness application. We face
competition from our customers internal information technology departments and
systems integrators, as well as from other application software providers that
offer a variety of products and services designed to address this market. We
believe that most customer deployments have been the result of large internal
development projects, customs solutions from systems integrators or the
application of personal and departmental productivity tools to the global
enterprise. We may not be able to compete successfully against such internal
development efforts.

We frequently rely on a number of systems consulting and systems integration
firms for a substantial portion of implementation and other global services, as
well as for recommendations of our products during the evaluation stage of the
purchase process. Although we seek to maintain close relationships with these
service providers, many of them have similar and often more established
relationships with our competitors. If we are unable to develop and retain
effective, long-term relationships with these third parties, our competitive
position could be materially and adversely affected. Further, many of these
third parties have significantly greater resources than we do and may market
software products that compete with ours and may otherwise reduce or
discontinue their relationships with, or support of, us and our products.

A large number of personal, departmental and other products exist in the
eBusiness applications market. Our competitors include a number of companies
that compete with us primarily within a particular product line and/or the
prospective customers industry. These companies include: E.piphany, Inc.; JD
Edwards & Company; Kana Software, Inc.; Microsoft Corporation, ONYX Software
Corporation, Siebel Systems, Inc.; and Salesforce.com, Inc., among many others.
In addition, our competitors include several companies such as Oracle
Corporation, PeopleSoft, Inc. and SAP AG, that compete in our product line.
Some of these competitors have longer operating histories; significantly
greater financial, technical, marketing and other resources; significantly
greater name recognition; and a larger installed base of customers than we do.
In addition, many competitors have well-established relationships with our
current and potential customers. As a result, these competitors may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements or to devote greater resources to the development, promotion and
sales of their products than we can.

There are many factors that may increase competition in the eBusiness systems
market, including: (i) entry of new competitors; (ii) alliance among existing
competitors; (iii) alliances between our competitors and systems integrators;
(iv) consolidation in the software industry or amongst systems integrators; and
(v) technological changes or changes in the use of the Internet. Increased
competition may result in price reductions, reduced gross margins or loss of
market share, any of which could materially and adversely affect our business,
operating results and financial condition. We cannot assure you that we will be
able to compete successfully against current and future competitors or that
competitive pressures faced by us will not materially and adversely affect our
business, financial condition or results of operations.

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

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United States in 2001, and the armed conflicts that have 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 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 recent
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 companies the
Pivotal CRM Suite combined with Microsoft .NET Enterprise Servers. However,
with Microsofts recent launch of a product called Microsoft® Customer
Relationship Management, which may overlap with the market for our products, we
may in future be faced with direct competition from Microsoft. Such direct
competition with our products may 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. The nine other
states and the District of Columbia continued to litigate the remedies phase.
The non-settling states sought remedies that would have imposed much broader
restrictions on Microsofts business than the settlement with the Justice
Department and the nine settling states. On November 1, 2002, the Court entered
a Final Judgment in this part of the litigation that largely mirrored the
settlement between Microsoft, the Justice Department and the settling states,
with some modifications and a

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different regime for enforcing compliance. The Court declined to impose other
and broader remedies sought by the non-settling states. Two states appealed
from this decision of the trial court and another dismissed its appeal as part
of a settlement with Microsoft of several cases.

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 E.piphany, Inc., JD Edwards & Company, Kana Software, Inc.,
ONYX Software Corporation, Siebel Systems, Inc., Salesforce.com, Inc., Oracle
Corporation, PeopleSoft, Inc. and SAP AG.

In addition, on January 21, 2003, Microsoft delivered a product called
Microsoft® Customer Relationship Management (CRM) which, is specifically
designed for the needs of small and medium-sized business customers. While we
believe that there currently is not 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.

OUR DISTRIBUTION CHANNELS MAY CREATE ADDITIONAL RISKS.

Failure to minimize channel conflicts could materially and adversely affect our
business, operating results and financial condition. We have a number of
relationships with resellers, which assist us in obtaining broad market
coverage. We have generally avoided exclusive relationships with resellers of
our products. Discount policies and reseller licensing programs are intended to
support each distribution channel with a minimum level of channel conflicts.

WE RELY ON SOFTWARE LICENSED TO US BY THIRD PARTIES FOR FEATURES WE INCLUDE IN
OUR PRODUCTS. IF WE DO NOT MAINTAIN OUR RELATIONSHIPS WITH THIRD-PARTY VENDORS,
INTERRUPTIONS IN THE SUPPLY OF OUR PRODUCTS MAY RESULT.

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. We may not be able to
replace the functionality provided by the third-party software currently
offered with our products if that software becomes obsolete or incompatible
with future versions of our products or is not adequately maintained or
updated. Although we believe there are other sources for these products, any
significant interruption in the availability of these products could adversely
impact our sales unless and until we can secure another source. We depend in
part on these third parties abilities to enhance their current products, to
develop new products on a timely and cost-effective basis and to respond to
emerging industry standards and other technological changes. The absence of or
any significant delay in the replacement of functionality provided by
third-party software in our products could materially and adversely affect our
sales.

THE MARKET FOR OUR PRODUCTS IS EMERGING 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

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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 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, together with 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.

THE LENGTH OF TIME REQUIRED BETWEEN ENGAGING A CLIENT AND IMPLEMENTING OUR
SOLUTIONS MAY BE LENGTHY AND UNPREDICTABLE.

The timing of the implementation of our products and services varies and is not
predictable with any degree of accuracy. Prior implementation cycles should not
be relied upon as any indication of future cycles. The implementation of our
products involves a significant commitment of resources by prospective
customers and is commonly associated with reengineering efforts that may be
performed by the customer or third-party systems integrators. The cost to the
customer of our product is typically only a portion of the related hardware,
software, development, training and integration costs of implementing a
large-scale eBusiness software system. For these and other reasons, the period
between initial contact and the implementation of our products is often lengthy
and is subject to a number of factors that may cause significant delays, over
many of which we have little or no control. These factors include the size and
complexity of the overall project and delays in our customers implementation
of Web-based computing environments. A delay in the implementation of even a
limited number of license transactions could have a material adverse effect on
our business, financial condition or results of operations and cause our
operating results to vary significantly from quarter to quarter.

OUR SUCCESS WILL DEPEND UPON THE SUCCESS OF OUR SOLUTIONS.

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

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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 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:



| |  |  | concerns about security of transactions conducted over the Internet;                                                                                                                                                            
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | concerns about privacy and the use of data collected and stored that record interactions over the Internet;                                                                                                                     
|
| |  |  | 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
|
| |  |  | 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:



| |  |  | 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;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | rapid expansion of the wireless services infrastructure which may result in flaws in the infrastructure;                                                                                                                                        
|
| |  |  | concerns over the radio frequency emissions or other health and safety risks that may discourage use of wireless services;
and                                                                                                                  
|
| |  |  | 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 PIVOTAL HOSTING SERVICES 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 17% and 19%
of our license revenues for the years ended June 30, 2003 and 2002,
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

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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 Pivotal Hosting Services 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 maintain key person insurance on the life of Mr.
Manning only.

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 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, France and India. 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:



| |  |  | unexpected changes in regulatory requirements;                                                                                                       
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | export restrictions, tariffs and other trade barriers;                                                                                               
|
| |  |  | changes in local tax rates or rulings by local tax authorities;                                                                                      
|
| |  |  | challenges in staffing and managing foreign operations, including
differing technology standards, employment laws and practices in
foreign countries;
|
| |  |  | less favorable intellectual property laws;                                                                                                           
|
| |  |  | longer accounts receivable payment cycles and difficulties in collecting payments;                                                                   
|
| |  |  | political and economic instability; and                                                                                                              
|
| |  |  | 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.

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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 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.

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.

Assuming our future revenue performance is comparable to the most recent
quarterly periods reported, we believe that, with the expense reduction efforts
instituted in fiscal 2003 and in the first quarter of fiscal 2004, existing
cash and cash equivalents will be sufficient to meet our capital requirements
for at least the next 18 months. However, due
to the potential effect that lower cash balances could have on our sales, we
may seek additional funds in the future through public or private equity
financing, corporate mergers or acquisitions, or from other sources to fund our
operations and pursue our growth strategy. Should our results for subsequent quarters
fall below the results we achieved in the fourth quarter of 2003, we may need
to take action to restructure our operations to preserve our cash. We may experience difficulty in
obtaining funding on favorable terms, if at all. Any financing we might 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 stock and may dilute current shareholders ownership
interest in the Company. To the extent that we require financing and
are unable to obtain it, we would be forced to significantly curtail
our operations.

IF WE ARE UNABLE TO MAINTAIN COMPLIANCE WITH OUR BANK COVENANTS IN THE FUTURE,
OUR LIQUIDITY COULD BE LIMITED AND OUR BUSINESS, FINANCIAL CONDITION AND
OPERATING RESULTS COULD BE MATERIALLY HARMED.

We currently have a credit agreement with a U.S. based bank that provides us
with a $6.0 million credit facility and is secured by a charge on all accounts
receivable, inventory, chattel paper, equipment and fixtures and a negative
pledge relating to the Companys general intangibles. The agreement requires
that we maintain the following two covenants: (a) a maximum net loss for the
quarter ending September 30, 2003 of $2.0 million and (b) a minimum qualified
cash balance of $7.6 million. We currently do not expect that we will violate
the minimum qualified cash covenant, however in the event that our revenues for
the quarter ending September 30, 2003 are at the low range of our forecast, it
is possible that the maximum net loss covenant will be violated. In this
scenario, in accordance with the loan agreement, the violation will be
immediately automatically waived, and the borrowing base will be restricted to
the lesser of $6.0 million and 80% of eligible U.S. and Canada accounts
receivable. If the amount of outstanding letters of credit is greater than the
borrowing base, we will be required to post restricted pledged cash for the
deficiency. Any restricted pledged cash amount will be counted toward the
minimum qualified cash balance. In the future, if we are unable to maintain
compliance with our bank covenants, our liquidity could be limited and our
business, financial condition and operating results could be materially harmed.

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.

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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.

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.

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 applications
related to 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.

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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 subject 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:



| |  | persuasive evidence of an arrangement exists,                                       
|- |  | ------------------------------------------------------------------------------------
| 
| |  | the fee is fixed or determinable,                                                   
| 
| |  | we can objectively allocate the total fee among all elements of the arrangement, and
| 
| |  | 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;
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.

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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. Over the last couple of years, 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 divest of holdings in shares in favor of other types of
non-share investments that may be seen as more secure.

We believe that the rapid decrease in our stock price during the first quarter of our 2003 fiscal year had a direct negative impact on our revenues
for that quarter, as some potential customers perceived the decrease in our stock price as an indication of internal issues with our company, and they therefore postponed or changed their
purchase decisions. To the extent that our stock price remains volatile in the future, our ability to generate revenues may be adversely affected.

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, 2003. 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.

IF WE ARE UNABLE TO COMPLY WITH NASDAQS CRITERIA FOR CONTINUED LISTING ON THE
NASDAQ NATIONAL MARKET, WE MAY BE TRANSFERRED TO THE NASDAQ SMALLCAP MARKET OR
DELISTED.

Our common shares are quoted on the Nasdaq National Market. There are a number
of continuing requirements that must be met in order for our common shares to
remain eligible for quotation on the Nasdaq National Market or the Nasdaq
SmallCap Market. The failure to meet the maintenance criteria in the future
could result in the delisting of our common shares from Nasdaq. If our common
shares were to be delisted, trading, if any, in the common shares may then
continue to be conducted on the OTC Bulletin Board. As a result, an investor
may find it more difficult to sell our common shares or to obtain accurate
quotations as to the market value of our common shares. To maintain the
quotation of our common stock on the Nasdaq National Market, we must satisfy
the financial and other requirements of the National Association of Securities
Dealers (NASD), for inclusion on Nasdaq. These requirements currently include,
but are not limited to, a minimum bid price of $1.00 for common stock and a
minimum shareholders equity balance of $10 million. The price of our common
stock is volatile and has been below $1.00 and may again decline below $1.00 in
the future. Our shareholders equity as of June 30, 2003 totaled $8.1 million,
below the minimum equity requirement. If Nasdaq provides us with a notice of
delisting, we would have the option of appealing the delisting decision to a
Nasdaq listing qualifications review panel and presenting our argument for
continued National Market listing to such panel, of applying for listing on the
Nasdaq SmallCap Market or of allowing the delisting to occur. Even if we appeal
and/or apply for listing on the Nasdaq SmallCap Market, we cannot guarantee
that the appeal will be successful or that the application will be accepted, as
the case may be, in which event delisting will occur and trading of our common
shares may thereafter take place on the OTC Bulletin Board.

THE INTEGRATION OF MARKETFIRST MAY BE DIFFICULT AND DISRUPTIVE.

We are currently in the process of integrating the MarketFirst business with
our business and are expending financial resources in this effort. The
integration of this company is 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 integrate. We will also need to integrate
the solutions of MarketFirst into our solution offering. We may not
successfully overcome these risks or any other problems that may be encountered
in connection with the acquisition of MarketFirst. Accordingly, it is uncertain
whether we will receive the benefits we anticipate from this acquisition and we
may not realize value from it comparable to the resources we have invested in
it.

WE ARE SUBJECT TO FOREIGN CURRENCY RISK WHICH COULD HAVE A MATERIALLY ADVERSE
EFFECT ON OUR FUTURE RESULTS.

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, foreign exchange rate volatility. 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 and on related foreign currency

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denominated monetary assets and liabilities. We have evaluated our exposure to
these risks and have determined that our only significant operating exposure to
foreign currencies exposure at this time is to the Canadian dollar through our
operations in Canada. While at this time we do not believe our operating
exposure to other individual currencies is material, we continue to be exposed
to foreign currency gains and losses on monetary assets and liabilities
denominated in local currencies and our future results could therefore be
materially adversely affected by such gains and losses.

ITEM 2.     PROPERTIES

Our principal administrative, marketing, professional services, education and
research and development facilities are located in Vancouver, British Columbia.
We lease approximately 135,000 square feet of office space through to September
2012. Approximately 43% of this space has been subleased.

Our main administrative office for Europe, the Middle East and Africa is
located in Dublin, Ireland held under a lease expiring in October 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. In
October 2002, we opened a development center in Bangalore, India held under a
lease that expires in March 2004.

As of June 30, 2003, we leased offices in: Tokyo, Japan; Paris, France; Belfast, Northern Ireland; High
Point, North Carolina; Des Plaines, Illinois; Mountain View, California;
Dallas, Texas; Framingham, Massachusetts; Calverton, Maryland; Atlanta, Georgia
and Toronto, Ontario. We also leased shared workplaces in: Sydney, Australia;
Auckland, New Zealand; Munchen, Germany; San Bruno and Irvine, California;
Denver, Colorado and Princeton, New Jersey.

As a result of our restructuring initiatives in fiscal 2002, we closed our office in Belfast, Northern Ireland. We are obligated to continue lease payments on this office until April 2007.

As a result of our restructuring initiatives in the first quarter of fiscal 2004, we are currently undertaking to
close our research and development facility in Atlanta, Georgia. We expect the
closure of this office to be completed by the second quarter of fiscal 2004. We
are obligated to continue lease payments on this office until April 2006.

ITEM 3.     LEGAL PROCEEDINGS

As of the date hereof, there is no material litigation pending against us. 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.

|               |  |                  |      |                  |  |      |      |     |  |   |       |  |  |   |      | 
|-------------- |  | ---------------- | ---- | ---------------- |  | ---- | ---- | --- |  | - | ----- |  |  | - | ---- | 
|               |  | Price Range      |      | Price Range     
|               |  | of Common Shares |      | of Common Shares
|               |  | for Year Ended   |      | for Year Ended  
|               |  | June 30, 2003    |      | June 30, 2002   
|               |  |                  |      |                 
|               |  | High             |      | Low              |  | High |      | Low
|               |  |                  |      |                  |  |      |      |    
|First Quarter  |  | $                | 3.83 |                  |  | $    | 0.90 |     |  | $ | 18.20 |  |  | $ | 4.17 | 
|Second Quarter |  | $                | 1.05 |                  |  | $    | 0.38 |     |  | $ | 6.15  |  |  | $ | 2.70 | 
|Third Quarter  |  | $                | 1.25 |                  |  | $    | 0.74 |     |  | $ | 6.54  |  |  | $ | 4.83 | 
|Fourth Quarter |  | $                | 1.29 |                  |  | $    | 0.77 |     |  | $ | 5.68  |  |  | $ | 3.13 | 

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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.

|               |  |                  |  |                  |  |            |  |          |  |  |  |  |  |  |  | 
|-------------- |  | ---------------- |  | ---------------- |  | ---------- |  | -------- |  |  |  |  |  |  |  | 
|               |  | Price Range      |  | Price Range     
|               |  | of Common Shares |  | of Common Shares
|               |  | for Year Ended   |  | for Year Ended  
|               |  | June 30, 2003    |  | June 30, 2002   
|               |  |                  |  |                 
|               |  | High             |  | Low              |  | High       |  | Low     
|               |  |                  |  |                  |  |            |  |         
|First Quarter  |  | Cdn$5.85         |  | Cdn$1.47         |  | Cdn$22.50  |  | Cdn$6.62
|Second Quarter |  | Cdn$1.69         |  | Cdn$0.60         |  | Cdn$  9.75 |  | Cdn$4.32
|Third Quarter  |  | Cdn$1.93         |  | Cdn$1.13         |  | Cdn$10.39  |  | Cdn$7.46
|Fourth Quarter |  | Cdn$1.74         |  | Cdn$1.13         |  | Cdn$  8.95 |  | Cdn$4.75

SHAREHOLDERS

As of August 29, 2003, there were approximately 403 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.

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

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, owning 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.

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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.

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 or 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
December 10, 1997 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,

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| | (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.                                                                                                                                                      

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, 2003, 2002 and 2001
and the consolidated balance sheet data as of June 30, 2003 and 2002 are
derived from audited financial statements included elsewhere in this report.
The consolidated statement of operations data for the years ended June 30, 2000
and 1999 and the consolidated balance sheet data as of June 30, 2001, 2000 and
1999 are derived from audited consolidated financial statements not included in
this report.

CONSOLIDATED STATEMENT OF OPERATIONS DATA:

|                                           |                                                          |                          |         |                                                           |        |      |         |        |         |      |         |        |         |  |        |        |        |  |        |        |        | 
|------------------------------------------ | -------------------------------------------------------- | ------------------------ | ------- | --------------------------------------------------------- | ------ | ---- | ------- | ------ | ------- | ---- | ------- | ------ | ------- |  | ------ | ------ | ------ |  | ------ | ------ | ------ | 
|                                           |                                                          |                          |         | YEARS ENDED
JUNE 30,(IN THOUSANDS, EXCEPT PER SHARE DATA)
|                                           |                                                          |                          |         |                                                          
|                                           |                                                          |                          |         | 2003                                                      |        | 2002 |         | 2001   |         | 2000 |         | 1999  
|                                           |                                                          |                          |         |                                                           |        |      |         |        |         |      |         |       
|Revenues:                                  |                                                          |                          |         |                                                           |        |      |         |        |         |      |         |        |         |  |        |        |        |  |        |       
|                                           | License                                                  |                          | $       | 18,917                                                    |        |      | $       | 29,282 |         |      | $       | 58,510 |         |  | $      | 37,384 |        |  | $      | 18,819 |       
|                                           | Services and maintenance                                 |                          |         | 37,160                                                    |        |      |         | 40,334 |         |      |         | 37,644 |         |  |        | 16,169 |        |  |        | 6,852  |       
|                                           |                                                          |                          |         |                                                           |        |      |         |        |         |      |         |        |         |  |        |        |        |  |        |       
|                                           |                                                          | Total revenues           |         |                                                           | 56,077 |      |         |        | 69,616  |      |         |        | 96,154  |  |        |        | 53,553 |  |        |        | 25,671 | 
|                                           |                                                          |                          |         |                                                           |        |      |         |        |         |      |         |        |         |  |        |        |        |  |        |       
|Cost of Revenues:                          |                                                          |                          |         |                                                           |        |      |         |        |         |      |         |        |         |  |        |        |        |  |        |       
|                                           | License(1)                                               |                          |         | 1,728                                                     |        |      |         | 2,739  |         |      |         | 3,800  |         |  |        | 2,141  |        |  |        | 536    |       
|                                           | Services and maintenance(1)                              |                          |         | 19,694                                                    |        |      |         | 23,957 |         |      |         | 21,030 |         |  |        | 8,761  |        |  |        | 3,422  |       
|                                           |                                                          |                          |         |                                                           |        |      |         |        |         |      |         |        |         |  |        |        |        |  |        |       
|                                           |                                                          | Total cost of revenues   |         |                                                           | 21,422 |      |         |        | 26,696  |      |         |        | 24,830  |  |        |        | 10,902 |  |        |        | 3,958  | 
|                                           |                                                          |                          |         |                                                           |        |      |         |        |         |      |         |        |         |  |        |        |        |  |        |       
|Gross profit                               |                                                          |                          | 34,655  |                                                           |        |      | 42,920  |        |         |      | 71,324  |        |         |  | 42,651 |        |        |  | 21,713 |       
|Operating Expenses:                        |                                                          |                          |         |                                                           |        |      |         |        |         |      |         |        |         |  |        |        |        |  |        |       
|                                           | Sales and marketing                                      |                          |         | 26,911                                                    |        |      |         | 41,417 |         |      |         | 51,230 |         |  |        | 31,165 |        |  |        | 16,830 |       
|                                           | Research and development                                 |                          |         | 16,397                                                    |        |      |         | 16,963 |         |      |         | 18,750 |         |  |        | 8,906  |        |  |        | 4,958  |       
|                                           | General and administrative(2)                            |                          |         | 8,328                                                     |        |      |         | 12,820 |         |      |         | 13,567 |         |  |        | 4,190  |        |  |        | 2,466  |       
|                                           | Restructuring and other charges(1),(3)                   |                          |         | 9,015                                                     |        |      |         | 51,167 |         |      |         |       |         |  |        |       |        |  |        |       |       
|                                           | Amortization of goodwill(4)                              |                          |         |                                                          |        |      |         | 15,669 |         |      |         | 22,440 |         |  |        | 1,380  |        |  |        |       |       
|                                           | Amortization of acquired intangibles                     |                          |         | 379                                                       |        |      |         | 488    |         |      |         | 622    |         |  |        | 29     |        |  |        |       |       
|                                           | In-process research and development and
other charges(5) |                          |         |                                                          |        |      |         |       |         |      |         |       |         |  |        | 6,979  |        |  |        |       |       
|                                           |                                                          |                          |         |                                                           |        |      |         |        |         |      |         |        |         |  |        |        |        |  |        |       
|                                           |                                                          | Total operating expenses |         |                                                           | 61,030 |      |         |        | 138,524 |      |         |        | 106,609 |  |        |        | 52,649 |  |        |        | 24,254 | 
|                                           |                                                          |                          |         |                                                           |        |      |         |        |         |      |         |        |         |  |        |        |        |  |        |       
|Loss from operations                       |                                                          |                          | (26,375 | )                                                         |        |      | (95,604 | )      |         |      | (35,285 | )      |         |  | (9,998 | )      |        |  | (2,541 | )     
|                                           |                                                          |                          |         |                                                           |        |      |         |        |         |      |         |        |         |  |        |        |        |  |        |       
|Other income (loss):                       |                                                          |                          |         |                                                           |        |      |         |        |         |      |         |        |         |  |        |        |        |  |        |       
|Interest and other income (loss)           |                                                          |                          | (500    | )                                                         |        |      | 1,289   |        |         |      | 3,333   |        |         |  | 2,193  |        |        |  | (24    | )     
|Impairment and loss on sale of investments |                                                          |                          | (353    | )                                                         |        |      | (1,244  | )      |         |      |        |        |         |  |       |        |        |  |       |       
|                                           |                                                          |                          |         |                                                           |        |      |         |        |         |      |         |        |         |  |        |        |        |  |        |       
|                                           |                                                          |                          | (853    | )                                                         |        |      | 45      |        |         |      | 3,333   |        |         |  | 2,193  |        |        |  | (24    | )     
|                                           |                                                          |                          |         |                                                           |        |      |         |        |         |      |         |        |         |  |        |        |        |  |        |       

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CONSOLIDATED STATEMENT OF OPERATIONS DATA:

|                                                                    |                                |   |                                                           |        |      |   |         |        |      |   |         |        |  |   |        |        |  |   |        |        | 
|------------------------------------------------------------------- | ------------------------------ | - | --------------------------------------------------------- | ------ | ---- | - | ------- | ------ | ---- | - | ------- | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                                                    |                                |   | YEARS ENDED
JUNE 30,(IN THOUSANDS, EXCEPT PER SHARE DATA)
|                                                                    |                                |   |                                                           |       
|                                                                    |                                |   | 2003                                                      |        | 2002 |   | 2001    |        | 2000 |   | 1999   
|                                                                    |                                |   |                                                           |        |      |   |         |        |      |   |        
|Loss before income taxes                                            |                                |   | (27,228                                                   | )      |      |   | (95,559 | )      |      |   | (31,952 | )      |  |   | (7,805 | )      |  |   | (2,565 | )     
|Income taxes                                                        |                                |   | 418                                                       |        |      |   | 386     |        |      |   | 503     |        |  |   | 557    |        |  |   | 243    |       
|                                                                    |                                |   |                                                           |        |      |   |         |        |      |   |         |        |  |   |        |        |  |   |        |       
|Net loss                                                            |                                | $ | (27,646                                                   | )      |      | $ | (95,945 | )      |      | $ | (32,455 | )      |  | $ | (8,362 | )      |  | $ | (2,808 | )     
|                                                                    |                                |   |                                                           |        |      |   |         |        |      |   |         |        |  |   |        |        |  |   |        |       
|Basic and diluted loss per share                                    |                                | $ | (1.10                                                     | )      |      | $ | (3.99   | )      |      | $ | (1.40   | )      |  | $ | (0.45  | )      |  | $ | (0.72  | )     
|Pro forma basic and diluted loss per share(6)                       |                                | $ |                                                          |        |      | $ |        |        |      | $ |        |        |  | $ | (0.39  | )      |  | $ | (0.18  | )     
|Weighted average number of shares used to calculate loss per share: |                                |   |                                                           |        |      |   |         |        |      |   |         |        |  |   |        |        |  |   |        |       
|                                                                    | Basic and diluted              |   |                                                           | 25,120 |      |   |         | 24,039 |      |   |         | 23,173 |  |   |        | 18,643 |  |   |        | 3,888  | 
|                                                                    | Pro forma basic and diluted(6) |   |                                                           |       |      |   |         |       |      |   |         |       |  |   |        | 21,339 |  |   |        | 15,940 | 

CONSOLIDATED BALANCE SHEET DATA:

|                                                  |  |                              |        |      |  |      |        |      |  |      |         |  |  |   |         |  |  |   |        |  
|------------------------------------------------- |  | ---------------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------ | -
|                                                  |  | AS
OF JUNE 30,(IN THOUSANDS)
|                                                  |  |                             
|                                                  |  | 2003                         |        | 2002 |  | 2001 |        | 2000 |  | 1999
|                                                  |  |                              |        |      |  |      |        |      |  |     
|Cash,
cash equivalents and short-term investments |  | $                            | 18,890 |      |  | $    | 41,283 |      |  | $    | 68,715  |  |  | $ | 35,522  |  |  | $ | 9,338  |  
|Working capital (deficit)                         |  |                              | (2,845 | )    |  |      | 23,572 |      |  |      | 58,366  |  |  |   | 28,297  |  |  |   | 7,257  |  
|Total assets                                      |  |                              | 45,316 |      |  |      | 68,645 |      |  |      | 168,443 |  |  |   | 121,945 |  |  |   | 21,722 |  
|Long-term obligations                             |  |                              | 3,709  |      |  |      | 3,505  |      |  |      | 592     |  |  |   |        |  |  |   |       |  
|Redeemable convertible preferred shares           |  |                              |       |      |  |      |       |      |  |      |        |  |  |   |        |  |  |   | 17,500 |  
|Total shareholders equity (deficit)              |  |                              | 8,098  |      |  |      | 33,783 |      |  |      | 128,201 |  |  |   | 96,097  |  |  |   | (7,192 | )
|Cash dividends per common share                   |  |                              |       |      |  |      |       |      |  |      |        |  |  |   |        |  |  |   |       |  



---



|(1) |  | During fiscal 2002, we included $2.4 million of charges related to the
withdrawal from certain purchase and partner contracts in Restructuring
costs and other charges. We have subsequently reclassified $0.8 million
from Restructuring costs and other charges to Cost of Revenues  License
and $1.6 million from Restructuring costs and other charges to Cost of
Revenues  Services and maintenance.                                                                                                                                                                                                                                
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | General and administrative expense for the year ended June 30, 2001
includes $1.8 million for asset impairments and deferred stock
compensation charges.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(3) |  | Restructuring costs and other charges for the years ended June 30, 2003
and 2002 includes respectively, $3.7 and $3.8 million for workforce
reduction, $0.4 and $3.7 million for contract settlement and other costs,
$4.9 and $10.7 million for excess facilities and asset impairments, and
nil and $33.0 million for the impairment of goodwill and other purchased
intangible assets.                                                                                                                                                                                                                                                  
|   
|(4) |  | Effective July 1, 2002, we adopted the provisions of Statement of
Financial Accounting Standards No. 142 (SFAS 142), Goodwill and other
Intangible Assets, and accordingly no longer amortize goodwill. See notes
1 and 6 of the notes to consolidated financial statements for further
explanation of the impact of SFAS 142.                                                                                                                                                                                                                                                                                                             
|   
|(5) |  | 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, we acquired Exactium Ltd. and Simba Digital
Technologies Inc. and included in the purchase price was an aggregate
amount of purchased in-process research and development of $4.7 million.
In addition to the charge for in-process research and development, we
recorded a write-down of other assets made redundant as a result of the
acquisitions in the amount of $2.3 million.

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|(6) |  | See note 1 of the notes to consolidated financial statements for an
explanation of the method used to calculate basic and diluted per share
amounts. Pro forma loss per share is computed using the weighted average
number of common shares outstanding and the weighted average Class A
convertible preferred shares and redeemable convertible preferred shares
outstanding as if such shares were converted into common shares and had been
outstanding at the beginning of the fiscal year. During the year ended June
30, 2000, all issued and outstanding preferred shares and redeemable
preferred shares were converted into common shares. The 2000 and 1999 figures
are calculated on a pro forma basis.                                                                                                                                                                                                                                                                                                                                                                     
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(7) |  | During the years ended June 30, 2003, 2001 and 2000, we completed a
number of acquisitions which were accounting for accounted for using the
purchase method of accounting. We did not complete any acquisitions during
the years ended June 30, 2002 and 1999. 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. See note 2 of the notes to the consolidated financial
statements for descriptions of the acquisitions completed during the years
ended June 30, 2003 and 2001. During the year ended June 30, 2000, we
completed the acquisitions of Transitif S.A., Exactium Ltd. and Simba
Digital Technologies Inc. We paid a total aggregate purchase price of
$64.0 million consisting of 1,655,000 common shares and stock options and
cash of $14.9 million. A portion of the purchase price was allocated to
acquired in-process technology; refer to note 5 above.

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

OVERVIEW

We develop Customer Relationship Management (CRM) software and, together with
our partners, provide our software and related business consulting services to
medium-sized businesses and divisions of large businesses worldwide. Our
software products enable companies to acquire, serve and manage customers
efficiently and intelligently and help them to manage collaborative
relationships between customers, business partners and employees. We refer to
our software as the Pivotal CRM Suite.

Our products are used in 44 countries and are available in English, French,
German, Spanish, Portuguese, Japanese, Chinese and Hebrew. More than 1,600
companies around the world have licensed Pivotal including: CIBC, Centex Homes,
Farm Credit Services of America, HarperCollins Publishers, Hitachi Telecom
Inc., Palm, Inc., Pharmacia Corporation, Premera Blue Cross, Royal Bank of
Canada, Sharp Electronics Corporation, Southern Company, Vivendi and WebEx
Communications. 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 Suite 700-858 Beatty Street, Vancouver, British Columbia,
Canada V6B 1C1, and our telephone number is (604) 699-8000. 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

Our consolidated financial statements are prepared in accordance with generally
accepted accounting principles in the United States of America. The preparation
of these financial statements requires us to make certain estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent liabilities. On an ongoing
basis, we evaluate our critical accounting policies and estimates, including
those related to revenue recognition, bad debts, goodwill and intangible assets
and restructuring and other charges.

We believe the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of our consolidated
financial statements. In addition, please refer to Note 1 of the accompanying
consolidated financial statements for further discussion of our accounting
policies.

Revenue Recognition

We derive our revenues from the sale of licenses and services and maintenance.
While the basis of software license revenue recognition is substantially
governed by the provisions of Statement of Position No. 97-2 (SOP 97-2),
Software Revenue Recognition,we exercise judgment and use estimates in
connection with the determination of the amount of new software license,
maintenance and support and services revenues to be recognized in each
accounting period.

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License revenues are normally generated from licensing with end-users,
value-added resellers (VARs) and, to a lesser extent, through distribution of
third-party products. When software licenses are sold indirectly to end-users
through VARs, we recognize as revenue only the net fee receivable from the VARs
upon sell-through to the end-customer. When software licenses are sold
incorporating third-party software products or sold with third-party products
that complement our software, we normally recognize as revenue the gross amount
of sales of third-party product. The recognition of gross revenue is in
accordance with criteria established in Emerging Issues Task Force Issue (EITF)
No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent.

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



| |  |  | 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);                                                     
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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            
|
| |  |  | 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, customer support services or consulting
services, are allocated among the component elements based upon the relative
fair value of each element. The fair value of each element is typically based
on 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 defer revenue for any undelivered
elements, and recognize revenue when the product is delivered or over the
period in which the service is performed, in accordance with our revenue
recognition policy for each respective element. If an acceptance period is
required, revenues are recognized upon the earlier of customer acceptance or
the expiration of the acceptance period. Our agreements with our 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.

Services and maintenance revenues are generated from the provision of
consulting services, education services, hosting services and maintenance and
support services. Consulting revenues are related to implementation services
provided under separate service arrangements with our customers and are
primarily performed on a time and materials basis. Revenues from consulting
services are recognized when the time and expenses are incurred and become
billable to the customer. In circumstances where we enter into fixed-price
service contracts, revenue is recognized by applying a proportional performance
method of accounting, which is based on the ratio of direct costs incurred to
the total estimated direct costs on the basis that we can make reasonably
dependable estimates of total costs to complete the engagement. In applying
this method, no costs are deferred on the balance sheet. Much of the
implementation services provided to our customers in connection with
installations of our solutions are provided by third-party consulting and
implementation service providers. We ordinarily do not record any revenues or
expenses in these situations as these third-party service providers normally
contract directly with the customer. We occasionally utilize third-party
consultants to assist us in implementations or installations originated by us,
and we typically recognize the revenue for these implementations and
installations on a gross basis in accordance with EITF 99-19, as the work that
is performed by these third-party consultants is supervised and reviewed by our
project managers. Revenues from education services are recognized as services
are provided to the customer. Hosting and maintenance and support revenues are
recognized ratably over the terms of the underlying contracts, typically one
year.

If a transaction includes both license and service elements, license fee
revenues are recognized separately on delivery 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, we defer recognition of revenues from both the license and the
service elements until the acceptance criteria are met.

Allowance for Doubtful Accounts

We make judgments as to our ability to collect outstanding receivables and we
provide allowances for the estimated uncollectible portion of receivables when
collection becomes doubtful. Provisions are made based upon a specific review
of all significant outstanding invoices. For those invoices not specifically
reviewed, provisions are provided at differing rates, based upon the age of the
receivable. In determining these percentages, we analyze our historical
collection experience and current economic trends. If historical data we use to
calculate the allowance for doubtful accounts does not reflect the future
ability to collect outstanding receivables, additional provisions for doubtful
accounts may be needed and the future results of operations could be materially
affected.

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Impairment of Goodwill and Intangible Assets

We periodically evaluate intangible asset valuations related to businesses we
acquired in order to determine whether impairment indicators have arisen. Our
judgments regarding the existence of impairment indicators are based on legal
factors, market conditions and operational performance of our acquired
businesses. Future events could cause us to conclude that impairment indicators
exist and that goodwill and other intangible assets associated with our
acquired businesses are impaired.

Restructuring and Other Charges

We have recorded restructuring charges associated with workforce reduction,
consolidation of excess facilities, contract settlements and asset impairments
in fiscal 2003 and 2002. On January 1, 2003, we adopted SFAS No. 146,
Accounting for Costs Associated with Exit and Disposal Activities. We recorded
the costs of restructuring activities initiated after this date when they were
incurred and could be measured at fair value. Prior to this date, we recorded
a one-time charge for most anticipated costs when there was a commitment to a
plan to exit an activity or dispose of long-lived assets in accordance with
EITF 94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity. These restructuring charges are based on
managements best estimate at the time of the restructuring. The majority of
estimates related to the charge for excess facilities. We were required to
estimate for each location the amount to be paid in lease termination payments,
the future lease and operating costs to be paid until the lease is terminated,
and the amount, if any of sublease revenues. Should any of the assumptions made
change, the actual costs may be materially different from the estimates. We
will review the status of the restructuring activities on a quarterly basis
and, if appropriate, record changes to our reserve in current operations.

Investment losses and impairment

At June 30, 2002, we held investments in publicly traded equity securities of
companies in which our ownership interest was less than 20% of the voting
rights and over which we did not exercise significant influence. During fiscal
2003, we disposed of these investments and recorded a loss on sale of $78,000.
Net unrealized holding gains and losses in these investments were excluded from
net loss and included in accumulated other comprehensive loss until such gains
or losses were realized. During the year ended June 30, 2002, we recorded a
write-down of $848,000 related to other-than-temporary declines in the value of
our investments in public companies.

We also hold certain investments in non-publicly traded companies in which we
have less than 20% of the voting rights and in which we do not exercise
significant influence. These investments are included in other assets and are
accounted for on a cost basis. We monitor these investments for factors
indicating other-than-temporary impairment and take a charge to other income
(loss) when appropriate. During the years ended June 30, 2003 and 2002,
respectively, we recorded charges of $275,000 and $375,000 related to the
impairment in the value of investments in non-public companies.

RECENT ACQUISITIONS

During the year ended June 30, 2003, we completed the acquisition of
MarketFirst Software, Inc. We completed no acquisitions during the year ended
June 30, 2002. 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 dates, and the related assets and liabilities
were recorded based upon their respective fair values at the dates of
acquisition.

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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, 2003 expressed as a
percentage of total revenues:

|                         |                                            |                          |     |                      |     |      |      |      |     |   |     |    |     |  
|------------------------ | ------------------------------------------ | ------------------------ | --- | -------------------- | --- | ---- | ---- | ---- | --- | - | --- | -- | --- | -
|                         |                                            |                          |     | Years ended June 30,
|                         |                                            |                          |     |                     
|                         |                                            |                          |     | 2003                 |     | 2002 |      | 2001
|                         |                                            |                          |     |                      |     |      |      |     
|Revenues:                |                                            |                          |     |                      |     |      |      |      |     |   |     |   
|                         | License                                    |                          |     | 34                   | %   |      |      | 42   | %   |   |     | 61 | %  
|                         | Services and maintenance                   |                          |     | 66                   | %   |      |      | 58   | %   |   |     | 39 | %  
|                         |                                            |                          |     |                      |     |      |      |      |     |   |     |   
|                         |                                            | Total revenues           |     |                      | 100 | %    |      |      | 100 | % |     |    | 100 | %
|                         |                                            |                          |     |                      |     |      |      |      |     |   |     |   
|Cost of Revenues:        |                                            |                          |     |                      |     |      |      |      |     |   |     |   
|                         | License                                    |                          |     | 3                    | %   |      |      | 4    | %   |   |     | 4  | %  
|                         | Services and maintenance                   |                          |     | 35                   | %   |      |      | 34   | %   |   |     | 22 | %  
|                         |                                            |                          |     |                      |     |      |      |      |     |   |     |   
|                         |                                            | Total cost of revenues   |     |                      | 38  | %    |      |      | 38  | % |     |    | 26  | %
|                         |                                            |                          |     |                      |     |      |      |      |     |   |     |   
|Gross profit             |                                            |                          | 62  | %                    |     |      | 62   | %    |     |   | 74  | % 
|                         |                                            |                          |     |                      |     |      |      |      |     |   |     |   
|Operating expenses:      |                                            |                          |     |                      |     |      |      |      |     |   |     |   
|                         | Sales and marketing                        |                          |     | 48                   | %   |      |      | 59   | %   |   |     | 54 | %  
|                         | Research and development                   |                          |     | 29                   | %   |      |      | 24   | %   |   |     | 20 | %  
|                         | General and administrative                 |                          |     | 15                   | %   |      |      | 18   | %   |   |     | 14 | %  
|                         | Restructuring and other charges            |                          |     | 16                   | %   |      |      | 74   | %   |   |     |   |    
|                         | Amortization of goodwill                   |                          |     |                     |     |      |      | 23   | %   |   |     | 23 | %  
|                         | Amortization of acquired intangibles       |                          |     | 1                    | %   |      |      | 1    | %   |   |     | 1  | %  
|                         |                                            |                          |     |                      |     |      |      |      |     |   |     |   
|                         |                                            | Total operating expenses |     |                      | 109 | %    |      |      | 199 | % |     |    | 112 | %
|                         |                                            |                          |     |                      |     |      |      |      |     |   |     |   
|Loss from operations     |                                            |                          | (47 | %)                   |     |      | (137 | %)   |     |   | (38 | %)
|Other income (loss):     |                                            |                          |     |                      |     |      |      |      |     |   |     |   
|                         | Interest and other income (loss)           |                          |     | (1                   | %)  |      |      | 2    | %   |   |     | 4  | %  
|                         | Impairment and loss on sale of
investments |                          |     | (1                   | %)  |      |      | (2   | %)  |   |     |   |    
|                         |                                            |                          |     |                      |     |      |      |      |     |   |     |   
|                         |                                            |                          | (2  | )%                   |     |      | 0    | %    |     |   | 4   | % 
|Loss before income taxes |                                            |                          | (49 | %)                   |     |      | (137 | %)   |     |   | (34 | %)
|Income taxes             |                                            |                          | 1   | %                    |     |      | 1    | %    |     |   | 1   | % 
|                         |                                            |                          |     |                      |     |      |      |      |     |   |     |   
|Net loss                 |                                            |                          | (50 | %)                   |     |      | (138 | %)   |     |   | (35 | %)
|                         |                                            |                          |     |                      |     |      |      |      |     |   |     |   

YEARS ENDED JUNE 30, 2003 AND 2002

REVENUES

Total revenues decreased 19% to $56.1 million for the year ended June 30, 2003
from $69.6 million for the year ended June 30, 2002.

The market for our solutions and related services is unpredictable. Our sales
are susceptible to fluctuations in the economy and the corresponding effect on
corporate purchasing habits can create a reluctance of companies to acquire
significant software systems. These market conditions may continue to
deteriorate. The severity and duration of any further deterioration may compel
us to consider further reductions in our workforce to realign with those market
conditions, on either a regional or global scale, or both. Any further
deterioration in market conditions 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.

No single customer accounted for 10% or more of our revenues for the years
ended June 30, 2003 and 2002.

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License

Revenues from licenses decreased 35% to $18.9 million for the year ended June
30, 2003 from $29.3 million for the year ended June 30, 2002.

Our revenues from licenses decreased as a result of the continued economic
slowdown through calendar 2002 and 2003 and the resulting impact on corporate
capital spending. We have observed an overall reduction in corporate capital
budgets and continue to experience unpredictable selling cycles. Our license
revenues depend on the overall demand for customer relationship management
solutions, and the overall demand for our software depends in large part on the
general economic and business conditions. Additionally, in the first quarter of
fiscal 2003 we experienced contract losses with some customers due to customer
concerns over the rapid decline of our stock price in the latter half of
September 2002.

Revenues from licenses represented 34% and 42% of total revenues for the years
ended June 30, 2003 and 2002, respectively. License revenues decreased as a
percentage of total revenues primarily due to the fact that license revenues
are more immediately impacted by 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 49% and 53% of total license revenues in the
years ended June 30, 2003 and 2002, respectively. International license
revenues accounted for 51% and 47% of total license revenues in the years ended
June 30, 2003 and 2002, respectively. International license revenues increased
as a percentage of total revenues due to relatively stronger performance by our
European selling organizations.

Services and Maintenance

Revenues from services and maintenance decreased 8% to $37.2 million for the
year ended June 30, 2003 from $40.3 million for the year ended June 30, 2002.
This change was comprised of a decrease of $5.6 million in revenues from
implementation, education, consulting, and hosting services, which was
partially offset by an increase of $2.5 million in revenues recognized from
technical support and maintenance contracts.

Revenues from implementation, education, consulting and hosting services have
decreased largely due to lower sales of software licenses in fiscal 2003 as
compared to the prior year. Revenues relating to maintenance contracts have
increased due to an increased customer base and renewals of maintenance
contracts upon expiration of previous year maintenance arrangements.

Our revenues from services and maintenance represented 66% and 58% of total
revenues for the years ended June 30, 2003 and 2002, respectively. We believe
that, over the long term, revenues from services and maintenance will decrease
over time as a percentage of total revenues, as license revenues are
anticipated to grow at a greater rate than service and maintenance revenues. We
plan to continue relying on third parties to provide a large part of
implementation services to our customers rather than providing those services
directly.

COST OF REVENUES

Our cost of license revenues consists primarily of media, product packaging and
shipping, documentation and other production costs, and third-party royalties.
Our cost of services and maintenance revenues consists primarily of salaries,
benefits and allocated overhead costs related to consulting, training and other
services personnel, as well as the cost of services provided by third-parties
contracted to perform implementations or hosting. Overhead costs are comprised
of facilities, communications and general office expenses and are allocated to
departments based on headcount.

Total cost of revenues decreased 20% to $21.4 million for the year ended June
30, 2003 from $26.7 million for the year ended June 30, 2002. The decrease in
total cost of revenues was due to decreased license revenues, as well as
reduced headcount and related allocations for facilities and communication
costs following our restructuring initiatives in the first and second quarter
of fiscal 2002 and in the second quarter of fiscal 2003.

License

Cost of revenues from licenses consists of product production and shipping
costs as well as the cost of third party technologies incorporated into our
products. Cost of revenues from licenses decreased 37% to $1.7 million for the
year ended June 30, 2003 from $2.7 million for the year ended June 30, 2002.
Cost of revenues from licenses as a percentage of revenues from licenses was 9%
for the years ended June 30, 2003 and 2002. The cost of revenues from licenses
for the year ended June 30, 2002 includes an amount of $0.8 million (3% of
revenues from licenses) related to the withdrawal from certain purchase
contracts previously classified as restructuring costs and other charges. The
remaining decrease of $0.2 million is due to decreased license revenues in
fiscal 2003 as compared to fiscal 2002. This was partially offset by higher
costs for third-party technology integrated with our products as a result of an
increase in products sold on an OEM and reseller basis. We expect that the cost
of licenses as a percentage of revenue from licenses will generally be in the
range of 6% to 9%, although they may fluctuate from quarter to quarter
depending on sales mix and costs of
third-party technology incorporated into our solutions.

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Services and Maintenance

Cost of revenues from services and maintenance decreased 18% to $19.7 million
for the year ended June 30, 2003 from $24.0 million for the year ended June 30,
2002. Cost of revenues from services and maintenance as a percentage of
revenues from services and maintenance was 53% and 59% for the years ended June
30, 2003 and 2002, respectively. The cost of revenue from services for the year
ended June 30, 2002 includes an amount of $1.6 million (4% of revenue from
services) related to the withdrawal from certain partner contracts, which was
previously classified as restructuring costs and other charges. The remaining
decrease of $2.7 million is due primarily to decreased personnel and facilities
costs following our restructuring initiatives in fiscal 2002 and 2003.

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.

Sales and Marketing

Sales and marketing expenses consist primarily of salaries, commissions 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 advertising, trade shows, direct mail, online marketing
and promotions.

Sales and marketing expenses decreased 35% to $26.9 million for the year ended
June 30, 2003 from $41.4 million for the year ended June 30, 2002. The decrease
of $14.5 million is the result of a reduction in employees and marketing
program expenditures following the implementation of our restructuring plans in
fiscal 2002 and fiscal 2003, as well as to increased operating efficiencies and
decreased commissions due to lower sales. Sales and marketing expenses
decreased as a percentage of total revenues to 48% from 59% for the years ended
June 30, 2003 and 2002, respectively. This decrease is mainly attributable to
lower salaries and commissions for sales and marketing personnel and lower
marketing program expenditures.

Research and Development

Research and development expenses include costs associated with the development
of new products, enhancements of existing products and quality assurance
activities. These costs 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.

In October 2002, we opened a development center in Bangalore, India and
incorporated a wholly-owned Indian subsidiary. As of June 30, 2003 we had 51
full-time employees in India. We intend to continue to increase headcount in
India over the next nine months. The Indian development center primarily
performs software development to augment our North American development teams.
We expect that our total research and development costs will decrease over the
next six months as we reduce contractor costs and continue to move non-core
research and development functions to India.

During the years ended June 30, 2003 and 2002 respectively, research and
development expenses decreased 3% from $17.0 million to $16.4 million. The
decrease is the result of a reduction in employees and some contract labor
following the implementation of our restructuring plans and the movement of
non-core research and development functions to India. Theses reductions were
partially offset by higher contract costs related to the development of Pivotal
5 during fiscal 2003. Pivotal 5 was released in late April 2003 and features an
enhanced user interface, the integration of MarketFirst technology, new
interactive selling and eService capabilities, additional new contact center
capabilities, and other platform enhancements. Research and development
expenses were 29% and 24% of total revenues for the years ended June 30, 2003
and 2002, respectively.

General and Administrative

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

General and administrative expenses decreased 35% to $8.3 million from $12.8
million for the years ended June 30, 2003 and 2002, respectively. General and
administrative expenses were 15% and 18% of total revenues, for the years ended
June 30, 2003 and 2002,

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respectively. The decrease in general and administrative expenses was due to
mainly to lower bad debt expense as well as a reduction in employees. The total
bad debt expense was $0.8 million and $5.5 million for the years ended June 30,
2003 and 2002, respectively.

Restructuring Costs and Other Charges

Restructuring costs and other charges are related to our initiatives to align
our operations with changing market conditions and to create a more efficient
organization. During fiscal 2003 and 2002, we implemented restructuring plans
and recorded charges of $9.0 million and $18.2 million, respectively, of costs
associated with workforce reductions, consolidation of excess facilities,
contract settlements and asset impairments. During fiscal 2002, we also
recorded charges of $33.0 million related to the impairment of previously
recorded goodwill and other purchased intangible assets.

In October 2002 we terminated approximately 120 employees, and in June 2003 we
terminated an additional 10 employees. Employee severance and related benefit
costs related to these terminations totaled approximately $3.7 million. The
workforce reduction was primarily in the United States, Canada and the United
Kingdom and extended across all business units. As at June 30, 2003, we had
made cash payments of $3.2 million to terminated employees. The remaining
obligation of $0.5 million at June 30, 2003 is included in accrued
restructuring costs and is expected to be paid in the first half of fiscal
2004.

During fiscal 2002, we terminated approximately 200 employees employed
primarily in the United States, Canada and the United Kingdom. Employee
severance and related benefit costs related to these terminations totaled
approximately $3.8 million. During the years ended June 30, 2003 and 2002, we
made cash payments of $0.2 million and $3.5 million, respectively, to
terminated employees.

During fiscal 2003 and 2002, we incurred charges of $4.4 million and $5.3
million, respectively, related to the consolidation of facilities. These
charges represent the remaining lease commitments, net of expected sublease
income, and other costs related to facilities made redundant as a result of the
workforce reductions 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. During the year
ended June 30, 2002, we made cash payments of $1.3 million for costs associated
with the consolidation of facilities. During the year ended June 30, 2003, we
made cash payments of $1.8 million and $1.0 million, respectively, for costs
associated with fiscal 2003 and 2002 initiatives. The remaining obligations,
which are comprised of future lease commitments, net of expected sublease
income, will be paid over the respective lease terms through to June 2008. The
charges may be increased in future periods if further consolidations are
required or if sublease income is less than expected.

We also incurred non-cash charges associated with fiscal 2003 and 2002
initiatives of $0.5 million and $5.4 million, respectively. These 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.

During fiscal 2003, we recorded charges of $0.4 million for contract settlement
costs of which $0.2 million was paid prior to June 30, 2003. The remaining cash
portion will be paid in fiscal 2004. If additional contracts are cancelled in
future periods, or if additional unforeseen costs are incurred in respect of
current contracts, this charge may increase. During fiscal 2002, we recorded
charges of $3.7 million for contract settlement costs including the penalties
expected to be incurred due to our withdrawal from certain purchase and partner
contracts. These charges also included the write-off of certain unrecoverable
expenses related to non-refundable prepaid costs associated with marketing
conferences that we subsequently decided not to participate in and certain
non-refundable marketing costs related to advertising programs that we
cancelled pursuant to the restructuring plans.

On July 9, 2003, we announced a corporate restructuring to further reduce our
cost structure. In the first quarter of fiscal 2004, we expect to incur
restructuring charges in the range of $1.8 million to $2.0 million related to
this initiative. Cost reductions will come from the transitioning to an
exclusive partner model in non-profitable markets outside North America, the
elimination of excess professional services resources and contractor costs, and
the continued movement of non-core research and development functions to our
subsidiary in India. We anticipate a quarterly operating cost structure of
approximately $13.5 million for the quarter ending September 30, 2003 resulting
from these restructuring initiatives; an estimated $7.1 million in savings as
compared to the quarter ending September 30, 2002.

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 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. See note 3 of the
notes to the consolidated financial statements for further description of
restructuring costs and other charges.

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Amortization of Goodwill and Acquired Intangibles

Due to our adoption of SFAS No. 141 and 142 on July 1, 2002, we no longer
amortize goodwill. Amortization of goodwill was $15.7 million for the year
ended June 30, 2002. As required by SFAS 142, we completed the transitional
goodwill impairment test in the first six months of fiscal 2003 and determined
that we did not have a transitional impairment of goodwill.

Also in conjunction with the implementation of SFAS 141 and 142, intangible
assets related to assembled workforce that were originally recognized and
reported as acquired intangibles were reclassified to goodwill and are no
longer amortized after July 1, 2002. Amortization of acquired intangible assets
during the years ended June 30, 2003 and 2002 was $379,000 and $488,000,
respectively.

INTEREST AND OTHER INCOME (LOSS)

Interest and other income (loss) 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 (loss) was $(0.5) million and $1.3 million for the years ended
June 30, 2003 and 2002, respectively. During the year ended June 30, 2003,
interest and other income (loss) was impacted by lower average cash and short
term investment balances. During the year ended June 30, 2003, interest and
other income (loss) included a foreign exchange loss of $0.7 million compared
to a foreign exchange gain of $0.2 million during the year ended June 30, 2002.
The foreign exchange losses were largely attributable to the impact of the
depreciation of the U.S. dollar on net liability balances held in our non-U.S.
subsidiaries. The other components of interest and other income (loss) were not
material for the periods presented.

IMPAIRMENT OF INVESTMENTS

During the years ended June 30, 2003 and 2002, we incurred charges of $0.3
million and $1.2 million, respectively, related to an other than temporary
impairment in the value of our investments in a private company and a public
company.

INCOME TAXES

The provision for income taxes was $418,000 and $386,000 for the years ended
June 30, 2003 and 2002, respectively. These income tax amounts were
attributable to our operations in the United States, the United Kingdom,
France, Australia and Japan.

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 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.

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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.

COST OF REVENUES

Total cost of revenues increased 8% to $26.7 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 decreased 28% to $2.7 million for the year ended
June 30, 2002 from $3.8 million for the year ended June 30, 2001. The decrease
of $1.1 million is due primarily to the 50% decrease in license sales and was
partially offset by the $0.8 million charge related to the withdrawal from
certain purchase contracts. Cost of revenues from licenses as a percentage of
revenues from licenses was 9% for the year ended June 30, 2002 and 6% for the
year ended June 30, 2001.

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 14% to $24.0 million
for the year ended June 30, 2002 from $21.0 million for the year ended June 30,
2001. The increase resulted from a higher average number of consulting,
customer support and education personnel during the year and the charge of $1.6
million related to the withdrawal of certain partner contracts. Cost of
revenues from services and maintenance as a percentage of revenues from
services and maintenance was 59% and 56% for the years ended June 30, 2002 and
2001, respectively.

OPERATING EXPENSES

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.

Sales and Marketing

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.

Research and Development

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

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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.

General and Administrative

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 of $0.8 million 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.

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 $51.2
million related to both restructuring activities and write-downs of intangible
assets. These charges included costs of $18.2 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.

We incurred non-cash charges of $5.1 million in fiscal 2002 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 to the restructuring
initiatives implemented during the year.

Charges of $5.6 million were incurred in fiscal 2002 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.

We recorded charges of $3.7 million in fiscal 2002 for contract settlement
costs including penalties expected to be incurred due to our withdrawal from
certain purchase and partner contracts. These charges also include the
write-off of certain unrecoverable expenses related to non-refundable prepaid
costs associated with conferences that we subsequently decided not to
participate in and certain non-refundable marketing costs related to
advertising programs that we cancelled pursuant to the restructuring plans. The
cash portion of these charges totaled $0.8 million, of which $0.4 million was
paid prior to June 30, 2002.

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 assets using a business enterprise methodology that
included a terminal value assigned to the related entities. This value was then
compared to the carrying

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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 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 and Acquired Intangibles

Amortization of goodwill was $15.7 million and $22.4 million for the years
ended June 30, 2002 and 2001, respectively. Amortization of acquired
intangibles was $488,000 and $622,000 for the years ended June 30, 2002 and
2001, respectively. The decreases resulted from a $33.0 million charge recorded
in the quarter ended December 31, 2001 for the impairment of goodwill and other
acquired intangible assets. Amortization for the year ended June 30, 2002 is
comprised of amortization for additions to goodwill and acquired intangibles
related to acquisitions that totaled $15.1 million and $58.1 million for fiscal
2001 and 2000, respectively.

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.

QUARTERLY RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 2003 AND 2002

The following tables present our unaudited quarterly results of operations both
in absolute dollars and on a 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 audited consolidated financial statements.

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Quarterly results of operations, expressed in United States dollars; all
amounts in thousands:

|                              |                                            |                          |        |                    |        |          |        |          |        |           |         |          |        |          |        |          |        |           |        |        |        |   |        |        |        |   |         |        |        |   |         |        |        | 
|----------------------------- | ------------------------------------------ | ------------------------ | ------ | ------------------ | ------ | -------- | ------ | -------- | ------ | --------- | ------- | -------- | ------ | -------- | ------ | -------- | ------ | --------- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                              |                                            |                          |        | Three months ended
|                              |                                            |                          |        |                   
|                              |                                            |                          |        | June 30,           |        | Mar. 31, |        | Dec. 31, |        | Sept. 30, |         | June 30, |        | Mar. 31, |        | Dec. 31, |        | Sept. 30,
|                              |                                            |                          |        | 2003               |        | 2003     |        | 2002     |        | 2002      |         | 2002     |        | 2002     |        | 2001     |        | 2001     
|                              |                                            |                          |        |                    |        |          |        |          |        |           |         |          |        |          |        |          |        |          
|REVENUES:                     |                                            |                          |        |                    |        |          |        |          |        |           |         |          |        |          |        |          |        |           |        |        |        |   |        |        |        |   |         |        |        |   |         |       
|                              | License                                    |                          | $      | 5,131              |        |          | $      | 3,554    |        |           | $       | 7,017    |        |          | $      | 3,215    |        |           | $      | 8,849  |        |   | $      | 7,510  |        |   | $       | 6,870  |        |   | $       | 6,053  |       
|                              | Services and maintenance                   |                          |        | 9,409              |        |          |        | 9,581    |        |           |         | 9,078    |        |          |        | 9,092    |        |           |        | 10,223 |        |   |        | 10,206 |        |   |         | 9,828  |        |   |         | 10,077 |       
|                              |                                            |                          |        |                    |        |          |        |          |        |           |         |          |        |          |        |          |        |           |        |        |        |   |        |        |        |   |         |        |        |   |         |       
|                              |                                            | Total revenues           |        |                    | 14,540 |          |        |          | 13,135 |           |         |          | 16,095 |          |        |          | 12,307 |           |        |        | 19,072 |   |        |        | 17,716 |   |         |        | 16,698 |   |         |        | 16,130 | 
|                              |                                            |                          |        |                    |        |          |        |          |        |           |         |          |        |          |        |          |        |           |        |        |        |   |        |        |        |   |         |        |        |   |         |       
|COST OF REVENUES:             |                                            |                          |        |                    |        |          |        |          |        |           |         |          |        |          |        |          |        |           |        |        |        |   |        |        |        |   |         |        |        |   |         |       
|                              | License(1)                                 |                          |        | 243                |        |          |        | 332      |        |           |         | 906      |        |          |        | 247      |        |           |        | 1,305  |        |   |        | 385    |        |   |         | 557    |        |   |         | 492    |       
|                              | Services and maintenance(2)                |                          |        | 4,626              |        |          |        | 5,003    |        |           |         | 4,719    |        |          |        | 5,346    |        |           |        | 5,443  |        |   |        | 5,025  |        |   |         | 7,521  |        |   |         | 5,968  |       
|                              |                                            |                          |        |                    |        |          |        |          |        |           |         |          |        |          |        |          |        |           |        |        |        |   |        |        |        |   |         |        |        |   |         |       
|                              |                                            | Total cost of revenues   |        |                    | 4,869  |          |        |          | 5,335  |           |         |          | 5,625  |          |        |          | 5,593  |           |        |        | 6,748  |   |        |        | 5,410  |   |         |        | 8,078  |   |         |        | 6,460  | 
|                              |                                            |                          |        |                    |        |          |        |          |        |           |         |          |        |          |        |          |        |           |        |        |        |   |        |        |        |   |         |        |        |   |         |       
|Gross profit                  |                                            |                          | 9,671  |                    |        |          | 7,800  |          |        |           | 10,470  |          |        |          | 6,714  |          |        |           | 12,324 |        |        |   | 12,306 |        |        |   | 8,620   |        |        |   | 9,670   |       
|                              |                                            |                          |        |                    |        |          |        |          |        |           |         |          |        |          |        |          |        |           |        |        |        |   |        |        |        |   |         |        |        |   |         |       
|OPERATING EXPENSES:           |                                            |                          |        |                    |        |          |        |          |        |           |         |          |        |          |        |          |        |           |        |        |        |   |        |        |        |   |         |        |        |   |         |       
|                              | Sales and marketing                        |                          |        | 5,361              |        |          |        | 5,414    |        |           |         | 7,080    |        |          |        | 9,056    |        |           |        | 8,803  |        |   |        | 8,734  |        |   |         | 10,476 |        |   |         | 13,404 |       
|                              | Research and development                   |                          |        | 4,092              |        |          |        | 4,276    |        |           |         | 4,126    |        |          |        | 3,903    |        |           |        | 3,720  |        |   |        | 3,636  |        |   |         | 4,660  |        |   |         | 4,947  |       
|                              | General and administrative                 |                          |        | 1,904              |        |          |        | 1,999    |        |           |         | 2,395    |        |          |        | 2,030    |        |           |        | 2,774  |        |   |        | 2,060  |        |   |         | 2,780  |        |   |         | 5,206  |       
|                              | Restructuring costs and other
charges(3)   |                          |        | 419                |        |          |        |         |        |           |         | 8,596    |        |          |        |         |        |           |        | 1,364  |        |   |        |       |        |   |         | 47,878 |        |   |         | 1,925  |       
|                              | Amortization of goodwill(4)                |                          |        |                   |        |          |        |         |        |           |         |         |        |          |        |         |        |           |        | 1,506  |        |   |        | 1,505  |        |   |         | 5,975  |        |   |         | 6,683  |       
|                              | Amortization of acquired
intangibles       |                          |        | 125                |        |          |        | 206      |        |           |         | 24       |        |          |        | 24       |        |           |        | 88     |        |   |        | 88     |        |   |         | 156    |        |   |         | 156    |       
|                              |                                            |                          |        |                    |        |          |        |          |        |           |         |          |        |          |        |          |        |           |        |        |        |   |        |        |        |   |         |        |        |   |         |       
|                              |                                            | Total operating expenses |        |                    | 11,901 |          |        |          | 11,895 |           |         |          | 22,221 |          |        |          | 15,013 |           |        |        | 18,255 |   |        |        | 16,023 |   |         |        | 71,925 |   |         |        | 32,321 | 
|                              |                                            |                          |        |                    |        |          |        |          |        |           |         |          |        |          |        |          |        |           |        |        |        |   |        |        |        |   |         |        |        |   |         |       
|Loss from operations          |                                            |                          | (2,230 | )                  |        |          | (4,095 | )        |        |           | (11,751 | )        |        |          | (8,299 | )        |        |           | (5,931 | )      |        |   | (3,717 | )      |        |   | (63,305 | )      |        |   | (22,651 | )     
|Other income (loss):          |                                            |                          |        |                    |        |          |        |          |        |           |         |          |        |          |        |          |        |           |        |        |        |   |        |        |        |   |         |        |        |   |         |       
|                              | Interest and other income (loss)           |                          |        | (131               | )      |          |        | (174     | )      |           |         | 94       |        |          |        | (289     | )      |           |        | 245    |        |   |        | 345    |        |   |         | 481    |        |   |         | 218    |       
|                              | Impairment and loss on sale of
investments |                          |        | (275               | )      |          |        |         |        |           |         | (78      | )      |          |        |         |        |           |        | (1,244 | )      |   |        |       |        |   |         |       |        |   |         |       |       
|                              |                                            |                          |        |                    |        |          |        |          |        |           |         |          |        |          |        |          |        |           |        |        |        |   |        |        |        |   |         |        |        |   |         |       
|                              |                                            |                          | (406   | )                  |        |          | (174   | )        |        |           | 16      |          |        |          | (289   | )        |        |           | (999   | )      |        |   | 345    |        |        |   | 481     |        |        |   | 218     |       
|                              |                                            |                          |        |                    |        |          |        |          |        |           |         |          |        |          |        |          |        |           |        |        |        |   |        |        |        |   |         |        |        |   |         |       
|Loss before income taxes      |                                            |                          | (2,636 | )                  |        |          | (4,269 | )        |        |           | (11,735 | )        |        |          | (8,588 | )        |        |           | (6,930 | )      |        |   | (3,372 | )      |        |   | (62,824 | )      |        |   | (22,433 | )     
|Income tax expense (recovery) |                                            |                          | 221    |                    |        |          | 18     |          |        |           | 16      |          |        |          | 163    |          |        |           | 60     |        |        |   | (8     | )      |        |   | 180     |        |        |   | 154     |       
|                              |                                            |                          |        |                    |        |          |        |          |        |           |         |          |        |          |        |          |        |           |        |        |        |   |        |        |        |   |         |        |        |   |         |       
|Net loss                      |                                            | $                        | (2,857 | )                  |        | $        | (4,287 | )        |        | $         | (11,751 | )        |        | $        | (8,751 | )        |        | $         | (6,990 | )      |        | $ | (3,364 | )      |        | $ | (63,004 | )      |        | $ | (22,587 | )     
|                              |                                            |                          |        |                    |        |          |        |          |        |           |         |          |        |          |        |          |        |           |        |        |        |   |        |        |        |   |         |        |        |   |         |       



---



|(1) |  | Cost of revenues  License for three months ended June 30, 2002 includes
$0.8 million of costs related to the withdrawal from certain purchase
contracts.                                                                                                                                                                                                                                                                                                                                  
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Cost of revenues  Services and maintenance for three months ended
December 31, 2001 includes $1.6 million of costs related to the withdrawal
from certain partner contracts.                                                                                                                                                                                                                                                                                                              
|   
|(3) |  | Restructuring costs and other charges for the three months ended December
31, 2001 includes $33.0 million of costs related to the impairment of
goodwill associated with the acquisitions of Exactium Ltd., Simba Digital
Technologies Inc., Software Spectrum CRM, Inc. and Project One Business
Technologies Inc. See note 3 of the notes to the consolidated financial
statements for further description of the restructuring costs and other
charges recorded in fiscal 2003 and 2002.
|   
|(4) |  | Effective July 1, 2002, we adopted the provisions of Statement of
Financial Accounting Standards No. 142 (SFAS 142), Goodwill and other
Intangible Assets, and accordingly no longer amortize goodwill. See notes
1 and 6 of the notes to consolidated financial statements for further
explanation of the impact of SFAS 142.                                                                                                                                                             

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Quarterly results of operations on a percentage of revenue basis:

|                         |                                            |  |                          |    |                    |     |          |    |          |     |           |    |          |     |          |    |          |     |           |    |    |     |     |    |   |     |      |     |   |     |      |    |   |     |  
|------------------------ | ------------------------------------------ |  | ------------------------ | -- | ------------------ | --- | -------- | -- | -------- | --- | --------- | -- | -------- | --- | -------- | -- | -------- | --- | --------- | -- | -- | --- | --- | -- | - | --- | ---- | --- | - | --- | ---- | -- | - | --- | -
|                         |                                            |  |                          |    | Three months ended
|                         |                                            |  |                          |    |                   
|                         |                                            |  |                          |    | June 30,           |     | Mar. 31, |    | Dec. 31, |     | Sept. 30, |    | June 30, |     | Mar. 31, |    | Dec. 31, |     | Sept. 30,
|                         |                                            |  |                          |    | 2003               |     | 2003     |    | 2002     |     | 2002      |    | 2002     |     | 2002     |    | 2001     |     | 2001     
|                         |                                            |  |                          |    |                    |     |          |    |          |     |           |    |          |     |          |    |          |     |          
|REVENUES:                |                                            |  |                          |    |                    |     |          |    |          |     |           |    |          |     |          |    |          |     |           |    |    |     |     |    |   |     |      |     |   |     |      |   
|                         | License                                    |  |                          | 35 | %                  |     |          | 27 | %        |     |           | 44 | %        |     |          | 26 | %        |     |           | 46 | %  |     |     | 42 | % |     |      | 41  | % |     |      | 38 | %
|                         | Services and maintenance                   |  |                          | 65 | %                  |     |          | 73 | %        |     |           | 56 | %        |     |          | 74 | %        |     |           | 54 | %  |     |     | 58 | % |     |      | 59  | % |     |      | 62 | %
|                         |                                            |  |                          |    |                    |     |          |    |          |     |           |    |          |     |          |    |          |     |           |    |    |     |     |    |   |     |      |     |   |     |      |   
|                         |                                            |  | Total revenues           |    |                    | 100 | %        |    |          | 100 | %         |    |          | 100 | %        |    |          | 100 | %         |    |    | 100 | %   |    |   | 100 | %    |     |   | 100 | %    |    |   | 100 | %
|                         |                                            |  |                          |    |                    |     |          |    |          |     |           |    |          |     |          |    |          |     |           |    |    |     |     |    |   |     |      |     |   |     |      |   
|COST OF REVENUES:        |                                            |  |                          |    |                    |     |          |    |          |     |           |    |          |     |          |    |          |     |           |    |    |     |     |    |   |     |      |     |   |     |      |   
|                         | License                                    |  |                          | 2  | %                  |     |          | 3  | %        |     |           | 6  | %        |     |          | 2  | %        |     |           | 7  | %  |     |     | 2  | % |     |      | 3   | % |     |      | 3  | %
|                         | Services and maintenance                   |  |                          | 32 | %                  |     |          | 38 | %        |     |           | 29 | %        |     |          | 43 | %        |     |           | 28 | %  |     |     | 29 | % |     |      | 45  | % |     |      | 37 | %
|                         |                                            |  |                          |    |                    |     |          |    |          |     |           |    |          |     |          |    |          |     |           |    |    |     |     |    |   |     |      |     |   |     |      |   
|                         |                                            |  | Total cost of revenues   |    |                    | 34  | %        |    |          | 41  | %         |    |          | 35  | %        |    |          | 45  | %         |    |    | 35  | %   |    |   | 31  | %    |     |   | 48  | %    |    |   | 40  | %
|                         |                                            |  |                          |    |                    |     |          |    |          |     |           |    |          |     |          |    |          |     |           |    |    |     |     |    |   |     |      |     |   |     |      |   
|Gross profit             |                                            |  | 66                       | %  |                    |     | 59       | %  |          |     | 65        | %  |          |     | 55       | %  |          |     | 65        | %  |    |     | 69  | %  |   |     | 52   | %   |   |     | 60   | % 
|                         |                                            |  |                          |    |                    |     |          |    |          |     |           |    |          |     |          |    |          |     |           |    |    |     |     |    |   |     |      |     |   |     |      |   
|OPERATING EXPENSES:      |                                            |  |                          |    |                    |     |          |    |          |     |           |    |          |     |          |    |          |     |           |    |    |     |     |    |   |     |      |     |   |     |      |   
|                         | Sales and marketing                        |  |                          | 37 | %                  |     |          | 41 | %        |     |           | 44 | %        |     |          | 74 | %        |     |           | 46 | %  |     |     | 49 | % |     |      | 63  | % |     |      | 83 | %
|                         | Research and development                   |  |                          | 28 | %                  |     |          | 33 | %        |     |           | 26 | %        |     |          | 32 | %        |     |           | 20 | %  |     |     | 21 | % |     |      | 28  | % |     |      | 31 | %
|                         | General and administrative                 |  |                          | 13 | %                  |     |          | 15 | %        |     |           | 15 | %        |     |          | 17 | %        |     |           | 15 | %  |     |     | 12 | % |     |      | 17  | % |     |      | 32 | %
|                         | Restructuring costs and other
charges      |  |                          | 3  | %                  |     |          |   |          |     |           | 53 | %        |     |          |   |          |     |           | 7  | %  |     |     |   |   |     |      | 287 | % |     |      | 12 | %
|                         | Amortization of goodwill                   |  |                          |   |                    |     |          |   |          |     |           |   |          |     |          |   |          |     |           | 8  | %  |     |     | 8  | % |     |      | 36  | % |     |      | 41 | %
|                         | Amortization of acquired
intangibles       |  |                          | 1  | %                  |     |          | 2  | %        |     |           |   |          |     |          |   |          |     |           |   |    |     |     |   |   |     |      | 1   | % |     |      | 1  | %
|                         |                                            |  |                          |    |                    |     |          |    |          |     |           |    |          |     |          |    |          |     |           |    |    |     |     |    |   |     |      |     |   |     |      |   
|                         |                                            |  | Total operating expenses |    |                    | 82  | %        |    |          | 91  | %         |    |          | 138 | %        |    |          | 123 | %         |    |    | 96  | %   |    |   | 90  | %    |     |   | 432 | %    |    |   | 200 | %
|                         |                                            |  |                          |    |                    |     |          |    |          |     |           |    |          |     |          |    |          |     |           |    |    |     |     |    |   |     |      |     |   |     |      |   
|Loss from operations     |                                            |  | (16                      | %) |                    |     | (32      | %) |          |     | (73       | %) |          |     | (68      | %) |          |     | (31       | %) |    |     | (21 | %) |   |     | (380 | %)  |   |     | (140 | %)
|Other income (loss):     |                                            |  |                          |    |                    |     |          |    |          |     |           |    |          |     |          |    |          |     |           |    |    |     |     |    |   |     |      |     |   |     |      |   
|                         | Interest and other income (loss)           |  |                          | (1 | %)                 |     |          | (1 | %)       |     |           | 1  | %        |     |          | (2 | %)       |     |           | 1  | %  |     |     | 2  | % |     |      | 3   | % |     |      | 1  | %
|                         | Impairment and loss on sale of
investments |  |                          | (2 | %)                 |     |          |   |          |     |           | (1 | %)       |     |          |   |          |     |           | (6 | %) |     |     |   |   |     |      |    |   |     |      |   |  
|                         |                                            |  |                          |    |                    |     |          |    |          |     |           |    |          |     |          |    |          |     |           |    |    |     |     |    |   |     |      |     |   |     |      |   
|                         |                                            |  | (3                       | %) |                    |     | (1       | %) |          |     |          |    |          |     | (2       | %) |          |     | (5        | %) |    |     | 2   | %  |   |     | 3    | %   |   |     | 1    | % 
|                         |                                            |  |                          |    |                    |     |          |    |          |     |           |    |          |     |          |    |          |     |           |    |    |     |     |    |   |     |      |     |   |     |      |   
|Loss before income taxes |                                            |  | (19                      | %) |                    |     | (33      | %) |          |     | (73       | %) |          |     | (70      | %) |          |     | (36       | %) |    |     | (19 | %) |   |     | (377 | %)  |   |     | (139 | %)
|Income taxes             |                                            |  | 1                        | %  |                    |     |         |    |          |     |          |    |          |     | 1        | %  |          |     | 1         | %  |    |     |    |    |   |     | 1    | %   |   |     | 1    | % 
|                         |                                            |  |                          |    |                    |     |          |    |          |     |           |    |          |     |          |    |          |     |           |    |    |     |     |    |   |     |      |     |   |     |      |   
|Net Loss                 |                                            |  | (20                      | %) |                    |     | (33      | %) |          |     | (73       | %) |          |     | (71      | %) |          |     | (37       | %) |    |     | (19 | %) |   |     | (378 | %)  |   |     | (140 | %)
|                         |                                            |  |                          |    |                    |     |          |    |          |     |           |    |          |     |          |    |          |     |           |    |    |     |     |    |   |     |      |     |   |     |      |   

For the year ended June 30, 2003 we experienced lower revenues related
primarily to decreased license sales as a result of the continued economic
slowdown and reduction in corporate capital budgets. In the quarter ended
September 30, 2002, we experienced contract losses with some customers due to
customer concerns over the rapid decline of our stock price in the latter half
of September 2002. In the quarter ended March 31, 2003, we experienced
decreased license revenues, primarily due to continued economic and
geopolitical uncertainty, which was compounded by the start of the invasion of
Iraq by the U.S. and Britain. 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 further decrease as a result of corporate restructuring undertaken
in the first quarter of fiscal 2004. 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

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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

|                                                   |                      |   |                                        |         |      |   |          |         |   |  |      |      |   
|-------------------------------------------------- | -------------------- | - | -------------------------------------- | ------- | ---- | - | -------- | ------- | - |  | ---- | ---- | --
|                                                   |                      |   | As at and for the years ended June 30,
|                                                   |                      |   |                                       
|                                                   |                      |   | 2003                                   |         | 2002 |   | % Change
|                                                   |                      |   |                                        |         |      |   |         
|Cash, cash equivalents, and short-term investments |                      | $ | 18,890                                 |         |      | $ | 41,283   |         |   |  | (54  | %)  
|Working capital (deficit)                          |                      |   | (2,845                                 | )       |      |   | 23,572   |         |   |  | (112 | %)  
|Net cash provided by (used in):                    |                      |   |                                        |         |      |   |          |         |   |  |      |     
|                                                   | Operating activities |   |                                        | (24,156 | )    |   |          | (24,322 | ) |  |      | (1   | %)
|                                                   | Investing activities |   |                                        | 12,143  |      |   |          | 30,784  |   |  |      | (61  | %)
|                                                   | Financing activities |   |                                        | (82     | )    |   |          | 613     |   |  |      | (113 | %)
|Days sales outstanding (DSO)                       |                      |   | 52                                     |         |      |   | 53       |         |   |  |      |     

Cash and cash equivalents consists of highly liquid short-term investments with
original maturities at the date of acquisition of 90 days or less. Short-term
investments consist of money market instruments with maturities of less than
one year. As of June 30, 2003, we had $8.2 million in cash and cash equivalents
and $10.7 million in short-term investments. Our cash, cash equivalents and
short-term investments decreased to $18.9 million as of June 30, 2003 from
$41.3 million as of June 30, 2002. Our working capital decreased to a deficit
of $(2.8) million at June 30, 2003 from $23.6 million at June 30, 2002.

Our accounts receivable at June 30, 2003, were 52 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.

As of June 30, 2003, our principal obligations consisted of
restructuring-related liabilities of $8.5 million (including costs assumed on
acquisition), of which $4.8 million is expected to be paid within the next 12
months, trade payables of $6.9 million, accrued compensation payable of $3.7
million and accrued liabilities of $3.8 million. The majority of the
restructuring-related liabilities relate to excess facilities in domestic and
international markets. The majority of our accounts payable, compensation
payable and accrued liabilities at June 30, 2003 will be settled during the
first quarter of fiscal 2004 and will result in a corresponding decline in the
amount of cash and cash equivalents, offset by liabilities associated with
activity in the period.

As of June 30, 2003, our future fixed commitments for cash payments related
primarily to obligations under non-cancelable operating and capital leases. We
lease facilities under non-cancelable operating leases expiring between 2004
and 2012 and certain equipment under non-cancelable operating and capital
leases expiring in 2004. Future minimum lease payments and other future fixed
commitments are as follows:

|                                  |                                              |   |        |        |          |   |           |       |           |   |           |       |  |   |       |       |  |   |        |        | 
|--------------------------------- | -------------------------------------------- | - | ------ | ------ | -------- | - | --------- | ----- | --------- | - | --------- | ----- |  | - | ----- | ----- |  | - | ------ | ------ | 
|                                  |                                              |   | Total  |        | < 1 year |   | 1-3 years |       | 3-5 years |   | > 5 years
|                                  |                                              |   |        |        |          |   |           |       |           |   |          
|Capital leases and long term debt |                                              | $ | 2,355  |        |          | $ | 1,751     |       |           | $ | 604       |       |  | $ |      |       |  | $ |       |       
|Restructuring liabilities         |                                              |   | 6,659  |        |          |   | 3,461     |       |           |   | 2,405     |       |  |   | 793   |       |  |   |       |       
|Operating leases                  |                                              |   |        |        |          |   |           |       |           |   |           |       |  |   |       |       |  |   |        |       
|                                  | (excluding amounts charged to restructuring) |   |        | 30,250 |          |   |           | 4,726 |           |   |           | 6,995 |  |   |       | 4,674 |  |   |        | 13,855 | 
|                                  |                                              |   |        |        |          |   |           |       |           |   |           |       |  |   |       |       |  |   |        |       
|Total cash obligations            |                                              | $ | 39,264 |        |          | $ | 9,938     |       |           | $ | 10,004    |       |  | $ | 5,467 |       |  | $ | 13,855 |       
|                                  |                                              |   |        |        |          |   |           |       |           |   |           |       |  |   |       |       |  |   |        |       

On December 30, 2002, we signed a credit agreement with a U.S. based bank. This
agreement provided us with a $7.0 million credit facility and was secured by a
charge on all accounts receivable, inventory, chattel paper, equipment and
fixtures and a negative pledge relating to the Companys general intangibles.
Direct borrowings would bear interest at prime rate plus 0.50%. The agreement
required that we maintain the following two covenants: (a) a maximum net loss
for the quarter ending September 30, 2003 of $3.0 million and (b) a minimum
qualified cash balance of $10.0 million. Upon violation of the maximum net loss
covenant, the borrowing base would be

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restricted to the lesser of $7.0 million and 80% of eligible U.S. and Canada
accounts receivable. Upon a violation of the minimum cash covenant, all
outstanding letters of credit would be secured by cash collateral and all the
outstanding borrowings would be immediately repaid. As at June 30, 2003, we had
issued standby letters of credit totaling $6.8 million under the facility, and
were in compliance with all associated covenants.

On August 15, 2003, we amended the credit agreement with the U.S. based bank to
revise the balances pertaining to the covenants: (a) the maximum net loss for
the quarter ending September 30, 2003 was decreased to $2.0 million and (b) the
minimum qualified cash balance was decreased to $7.6 million. Also, the maximum
borrowing base was decreased to $6.0 million; all other provisions remain in
effect.

We currently do not expect that we will violate the minimum qualified cash
covenant, however in the event that our revenues for the quarter ending
September 30, 2003 are at the low range of our forecast, it is possible that
the maximum net loss covenant will be violated. In this scenario, in accordance
with the loan agreement, the violation will be immediately automatically
waived, and the borrowing base will be restricted to the lesser of $6.0 million
and 80% of eligible U.S. and Canada accounts receivable. If the amount of
outstanding letters of credit is greater than the borrowing base, we will be
required to post restricted pledged cash for the deficiency. Any restricted
pledged cash amount will be counted toward the minimum qualified cash balance.

On December 24, 2002, we amended our existing credit agreement with a Canadian
based bank. Under the amended agreement, the facility was limited to the amount
of outstanding letters of credit totaling $5.9 million and was secured by
back-to-back letters of credit. As at June 30, 2003, the Company was in
compliance with all associated covenants. On August 2, 2003, all letters of
credit outstanding under this facility expired and the facility was effectively
terminated.

Net cash used in operating activities was $24.2 million and $24.3 million for
the years ended June 30, 2003 and 2002, respectively. The operating cash
outflows in 2003 were primarily the result of our operating loss adjusted for
non-cash depreciation, amortization and restructuring charges, and net cash
provided by operating assets and liabilities. The operating cash outflows in
2002 were primarily the result of our operating loss adjusted for non-cash
depreciation, amortization, impairment and restructuring charges, and net cash
provided by operating assets and liabilities.

Net cash provided by investing activities was $12.1 million and $30.8 million
during the years ended June 30, 2003 and 2002, respectively. The decrease was
primarily related to lower proceeds from the sales and maturities of short-term
investments; we received $10.3 million and $34.5 million in proceeds during the
year ended June 30, 2003 and 2002, respectively. Capital expenditures totaled
$1.7 million and $1.2 million for the years ended June 30, 2003 and 2002,
respectively. During the year ended June 30, 2003 we completed the acquisition
of MarketFirst Software, Inc. and acquired net cash of $2.5 million. During the
year ended June 30, 2002 we received proceeds of $1.3 million from the sale and
leaseback of assets.

Net cash used in financing activities was $82,000 for the year ended June 30,
2003 as compared to net cash provided by financing activities of $613,000 in
2002. For fiscal years 2003 and 2002, the cash inflows from financing
activities consisted primarily of net proceeds of $294,000 and $978,000,
respectively, from the issuance of common stock pursuant to the exercise of
stock options and the Companys employee stock purchase plan. These inflows
were wholly offset in fiscal 2003 and partially offset in fiscal 2002 by the
repayment of capital lease obligations.

If we are unable to maintain compliance with our bank loan covenants in the
future, our liquidity could be limited and our business, financial condition
and operating results could be materially harmed.

Assuming our future revenue performance is comparable to the most recent
quarterly periods reported, we believe that, with the expense reduction efforts
instituted in fiscal 2003 and in the first quarter of fiscal 2004, existing
cash and cash equivalents will be sufficient to meet our capital requirements
for at least the next 18 months. However, due
to the potential effect that lower cash balances could have on our sales, we
may seek additional funds in the future through public or private equity
financing, corporate mergers or acquisitions, or from other sources to fund our
operations and pursue our growth strategy. Should our results for subsequent quarters
fall below the results we achieved in the fourth quarter of 2003, we may need
to take action to restructure our operations to preserve our cash. We may experience difficulty in
obtaining funding on favorable terms, if at all. Any financing we might 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 stock and may dilute current shareholders ownership
interest in the Company. To the extent that we require financing and are unable to obtain it, we would be forced to significantly curtail our operations.

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Recent Accounting Pronouncements

Accounting for Revenue Arrangements with Multiple Deliverables

In November 2002, the EITF reached a consensus on Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables. Issue 00-21 provides guidance on how
to account for arrangements that involve the delivery or performance of
multiple products, services and/or rights to use assets. The provisions of
Issue 00-21 will apply to revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. We do not believe that the adoption of Issue
00-21 will have a material effect on our consolidated financial position,
results of operations or cash flows.

Accounting for and Disclosure of Guarantees

In November 2002, the FASB issued Interpretation No. 45 (FIN 45), Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN 45 requires certain guarantees to be
recorded at fair value upon issuance of a guarantee, which is different from
current practice, where a liability is recorded when a loss is probable and
reasonably estimable. In addition, FIN 45 also requires a guarantor to make
significant new disclosures, even when the likelihood of making any payments
under the guarantee is remote, which is another change from current practice.
In general, FIN 45 applies to contracts or indemnification agreements that
contingently require the guarantor to make payments to the guaranteed party
based on changes in an underlying obligation that is related to an asset,
liability or an equity security of the guaranteed party. We have applied the
recognition provisions of FIN 45 prospectively to guarantees issued after
December 15, 2002. The adoption of FIN 45 did not have a material impact on our
consolidated financial position, results of operations or cash flows.

Consolidation of Variable Interest Entities

In January 2003, the FASB issued Interpretation No. 46 (FIN 46), Consolidation
of Variable Interest Entities,an interpretation of Accounting Research
Bulletin No. 51, Consolidated Financial Statements. FIN 46 establishes
accounting guidance for consolidation of variable interest entities that
function to support the activities of the primary beneficiary. FIN 46 applies
to any business enterprise, both public and private, that has a controlling
interest, contractual relationship or other business relationship with a
variable interest entity. We believe that we have no investment in or
contractual relationship or other business relationship with a variable
interest entity and therefore the adoption did not have any impact on our
consolidated financial position or results of operations. However, if we enter
into any such arrangement with a variable interest entity in the future, our
consolidated financial position or results of operations may be adversely
impacted.

Amendment of Statement 133 on Derivative Instruments and Hedging Activities

In April 2003, the FASB issued Statement No. 149 (SFAS No. 149), Amendment of
Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 is
intended to result in more consistent reporting of contracts as either
freestanding derivative instruments subject to Statement 133 in its entirety,
or as hybrid instruments with debt host contracts and embedded derivative
features. In addition, SFAS No. 149 clarifies the definition of a derivative by
providing guidance on the meaning of initial net investments related to
derivatives. SFAS No. 149 is effective for contracts entered into or modified
after June 30, 2003. We do not believe the adoption of SFAS No. 149 will have a
material effect on our consolidated financial position, results of operations
or cash flows.

Financial Instruments with Characteristics of Both Liabilities and Equity

In May 2003, the FASB issued Statement No. 150 (SFAS No. 150), Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity. SFAS No. 150 establishes standards for classifying and measuring as
liabilities certain financial instruments that embody obligations of the issuer
and have characteristics of both liabilities and equity. SFAS No. 150
represents a significant change in practice in the accounting for a number of
financial instruments, including mandatorily redeemable equity instruments and
certain equity derivatives. SFAS No. 150 is effective for all financial
instruments created or modified after May 31, 2003, and to other instruments as
of September 1, 2003. We will adopt the provisions of SFAS No. 150 on July 1,
2003. We do not expect that the adoption of this Statement will have a material
impact on our results of operations and financial position.

Off-Balance Sheet Arrangements

As at June 30, 2003, we were not party to any reportable off-balance sheet arrangements.

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 Jeremy Jaech,

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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.

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

Market risk represents the risk of loss that may impact our financial position
due to adverse changes in financial market prices and rates. Our market risk
exposure is primarily a result of fluctuations in interest rates and foreign
currency exchange rates. We do not hold or issue financial instruments for
trading purposes.

INTEREST RATE RISK

Our exposure to market rate risk for changes in interest rates relates
primarily to our investment portfolio. The investment of cash is regulated by
our investment policy of which the primary objective is the security of
principal. Among other selection criteria, the investment policy states that
the term to maturity of investments cannot exceed one year in length. 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. We do not use
derivative financial instruments in our investment portfolio.

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.

While interest income on our cash, cash equivalents, and short-term investments
is subject to interest rate fluctuations, we believe that the impact of these
fluctuations does not have a material effect on our financial position due to
the short-term nature of these financial instruments. Our interest income and
interest expense are most sensitive to the general level of interest rates in
Canada and the United States. Sensitivity analysis is used to measure our
interest rate risk. Based on analysis of our balances as of June 30, 2003, a
100 basis-point adverse change in interest rates would not have a material
effect on our consolidated financial position, results of operation, or cash
flows.

FOREIGN CURRENCY RISK

We conduct business on a global basis in international currencies. As such, we
are exposed to adverse or beneficial movements in foreign exchange rates. The
majority of our sales are denominated in U.S. dollars, the functional currency
of our domestic and foreign operations and the currency in which we report our
financial statements. We also conduct a portion of our sales in currencies
other than the U.S. dollar, including the British pound and Euro.

We are exposed to foreign exchange fluctuations as the financial results of our
foreign subsidiaries are translated into U.S. dollars on consolidation. All
translation gains and losses are included in the determination of net income
(loss). As exchange rates vary, these results when translated may impact our
overall expected financial results. We also have exposure to foreign currency
rate fluctuations when we translate cash from one currency into another to fund
operational requirements. In addition, we have exposure to the change in rates
as the result of timing differences between expenses being incurred and paid.
As exchange rates vary, we may experience a negative impact on financial
results.

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We incur the majority of our research and development, customer support, and
administrative expenses in Canadian dollars. In fiscal 2003, approximately 28%
of our total expenses were denominated in U.S. dollars, 16% in Euros, 13% in
British pounds and 38% in Canadian dollars. In fiscal 2003, approximately 69%
of our revenue was denominated in U.S. dollars, 17% in Euros, 13% in British
pounds and less than 1% in Canadian dollars. These percentages fluctuate with
exchange rates, business operating changes and cash flow versus expense
patterns. We have evaluated our exposure to these risks and have determined
that while we have a degree of exposure to the Euro and British pound, our most
significant operating exposure to foreign currencies at this time is to the
Canadian dollar. The strengthening of the Canadian dollar has negatively
affected our operating results. For fiscal 2003, a 10% increase in the Canadian
dollar relative to the U.S. dollar would have increased our expenses by
approximately 4%.

To minimize the risk associated with the effects of certain foreign currency
exposures, in particular with transactions originating in Canadian dollars, we
occasionally use foreign currency forward exchange contracts. We do not use
forward contracts for trading or speculative purposes. We do not designate
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 (loss) in the current period. In addition to the use of
forward contracts, 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.

At June 30, 2003 and June 30, 2002, we had no outstanding currency forward
exchange contracts. During the year ended June 30, 2003, we recorded a foreign
exchange loss of $743,000 compared to a gain of $162,000 during the year ended
June 30, 2002.

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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 and subsidiaries as of June 30, 2003 and 2002 and the related
consolidated statements of operations, shareholders equity and cash flows for
each of the three years in the period ended June 30, 2003. Our audit also
included the financial statement schedule listed in the Index at Item 15(a).
These consolidated financial statements and financial statement schedule 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, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Pivotal Corporation
as of June 30, 2003 and 2002 and the results of its operations and its cash
flows for each of the three years in the period ended June 30, 2003 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.

As discussed in Note 1 to the consolidated financial statements, effective July
1, 2002, the Company changed its method of accounting for goodwill in
accordance with Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets.

On July 23, 2003, we reported separately to the shareholders of Pivotal
Corporation on the consolidated financial statements for the same periods,
audited in accordance with Canadian generally accepted auditing standards and
prepared in accordance with Canadian generally accepted accounting principles.

/s/ Deloitte & Touche LLP

Vancouver, Canada
July 23, 2003

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

|                                                                           |                                                                                                            |                                                                                                                        |        |          |         |      |        |          |         | 
|-------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | ------ | -------- | ------- | ---- | ------ | -------- | ------- | 
|                                                                           |                                                                                                            |                                                                                                                        |        | June 30,
|                                                                           |                                                                                                            |                                                                                                                        |        |         
|                                                                           |                                                                                                            |                                                                                                                        |        | 2003     |         | 2002
|                                                                           |                                                                                                            |                                                                                                                        |        |          |         |     
|ASSETS                                                                     |                                                                                                            |                                                                                                                        |        |          |         |      |        |         
|Current assets:                                                            |                                                                                                            |                                                                                                                        |        |          |         |      |        |         
|                                                                           | Cash and cash equivalents                                                                                  |                                                                                                                        | $      | 8,227    |         |      | $      | 20,322   |        
|                                                                           | Short-term investments                                                                                     |                                                                                                                        |        | 10,663   |         |      |        | 20,961   |        
|                                                                           | Accounts receivable, net                                                                                   |                                                                                                                        |        | 8,248    |         |      |        | 11,100   |        
|                                                                           | Prepaid expenses and other                                                                                 |                                                                                                                        |        | 3,526    |         |      |        | 2,546    |        
|                                                                           |                                                                                                            |                                                                                                                        |        |          |         |      |        |         
|Total current assets                                                       |                                                                                                            |                                                                                                                        | 30,664 |          |         |      | 54,929 |         
|Property and equipment, net                                                |                                                                                                            |                                                                                                                        | 3,083  |          |         |      | 4,201  |         
|Goodwill                                                                   |                                                                                                            |                                                                                                                        | 9,941  |          |         |      | 7,308  |         
|Acquired intangibles, net                                                  |                                                                                                            |                                                                                                                        | 655    |          |         |      | 324    |         
|Other assets                                                               |                                                                                                            |                                                                                                                        | 973    |          |         |      | 1,883  |         
|                                                                           |                                                                                                            |                                                                                                                        |        |          |         |      |        |         
|Total assets                                                               |                                                                                                            | $                                                                                                                      | 45,316 |          |         | $    | 68,645 |         
|                                                                           |                                                                                                            |                                                                                                                        |        |          |         |      |        |         
|LIABILITIES AND SHAREHOLDERS EQUITY                                       |                                                                                                            |                                                                                                                        |        |          |         |      |        |         
|Current liabilities:                                                       |                                                                                                            |                                                                                                                        |        |          |         |      |        |         
|                                                                           | Accounts payable and accrued liabilities                                                                   |                                                                                                                        | $      | 14,929   |         |      | $      | 16,787   |        
|                                                                           | Current portion of accrued restructuring costs                                                             |                                                                                                                        |        | 3,554    |         |      |        | 1,923    |        
|                                                                           | Current portion of restructuring costs assumed on acquisition                                              |                                                                                                                        |        | 1,270    |         |      |        |         |        
|                                                                           | Deferred revenue                                                                                           |                                                                                                                        |        | 13,275   |         |      |        | 12,327   |        
|                                                                           | Current portion of obligations under capital leases and long-term debt                                     |                                                                                                                        |        | 481      |         |      |        | 320      |        
|                                                                           |                                                                                                            |                                                                                                                        |        |          |         |      |        |         
|Total current liabilities                                                  |                                                                                                            |                                                                                                                        | 33,509 |          |         |      | 31,357 |         
|                                                                           |                                                                                                            |                                                                                                                        |        |          |         |      |        |         
|Non-current portion of accrued restructuring costs                         |                                                                                                            |                                                                                                                        | 3,105  |          |         |      | 3,082  |         
|Non-current portion of restructuring costs assumed on acquisition          |                                                                                                            |                                                                                                                        | 567    |          |         |      |       |         
|Non-current portion of obligations under capital leases and long-term debt |                                                                                                            |                                                                                                                        | 37     |          |         |      | 423    |         
|                                                                           |                                                                                                            |                                                                                                                        |        |          |         |      |        |         
|Total liabilities                                                          |                                                                                                            |                                                                                                                        | 37,218 |          |         |      | 34,862 |         
|Commitments and contingencies (Note 10)                                    |                                                                                                            |                                                                                                                        |        |          |         |      |        |         
|                                                                           |                                                                                                            |                                                                                                                        |        |          |         |      |        |         
|Shareholders equity:                                                      |                                                                                                            |                                                                                                                        |        |          |         |      |        |         
|                                                                           | Preferred shares, undesignated, no par value: authorized
shares  20,000; no shares issued and outstanding |                                                                                                                        |        |         |         |      |        |         |        
|                                                                           | Common shares and additional paid-in capital, no par value:                                                |                                                                                                                        |        |          |         |      |        |          |        
|                                                                           |                                                                                                            | authorized
shares  200,000; issued and outstanding
shares  25,717 and 24,096 at June 30, 2003 and 2002, respectively |        |          | 179,932 |      |        |          | 178,084 | 
|                                                                           | Deferred share-based compensation                                                                          |                                                                                                                        |        |         |         |      |        | (23      | )      
|                                                                           | Accumulated other comprehensive loss                                                                       |                                                                                                                        |        |         |         |      |        | (90      | )      
|                                                                           | Accumulated deficit                                                                                        |                                                                                                                        |        | (171,834 | )       |      |        | (144,188 | )      
|                                                                           |                                                                                                            |                                                                                                                        |        |          |         |      |        |         
|Total shareholders equity                                                 |                                                                                                            |                                                                                                                        | 8,098  |          |         |      | 33,783 |         
|                                                                           |                                                                                                            |                                                                                                                        |        |          |         |      |        |         
|Total liabilities and shareholders equity                                 |                                                                                                            | $                                                                                                                      | 45,316 |          |         | $    | 68,645 |         
|                                                                           |                                                                                                            |                                                                                                                        |        |          |         |      |        |         

See accompanying Notes to the Consolidated Financial Statements.

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##### Table of Contents



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

|                                                                    |                                            |   |                      |        |      |   |         |        |   |   |         |        |  
|------------------------------------------------------------------- | ------------------------------------------ | - | -------------------- | ------ | ---- | - | ------- | ------ | - | - | ------- | ------ | -
|                                                                    |                                            |   | Years ended June 30,
|                                                                    |                                            |   |                     
|                                                                    |                                            |   | 2003                 |        | 2002 |   | 2001   
|                                                                    |                                            |   |                      |        |      |   |        
|Revenues:                                                           |                                            |   |                      |        |      |   |         |        |   |   |         |       
|                                                                    | License                                    |   | $                    | 18,917 |      |   | $       | 29,282 |   |   | $       | 58,510 |  
|                                                                    | Services and maintenance                   |   |                      | 37,160 |      |   |         | 40,334 |   |   |         | 37,644 |  
|                                                                    |                                            |   |                      |        |      |   |         |        |   |   |         |       
|Total revenues                                                      |                                            |   | 56,077               |        |      |   | 69,616  |        |   |   | 96,154  |       
|                                                                    |                                            |   |                      |        |      |   |         |        |   |   |         |       
|Cost of revenues:                                                   |                                            |   |                      |        |      |   |         |        |   |   |         |       
|                                                                    | License                                    |   |                      | 1,728  |      |   |         | 2,739  |   |   |         | 3,800  |  
|                                                                    | Services and maintenance                   |   |                      | 19,694 |      |   |         | 23,957 |   |   |         | 21,030 |  
|                                                                    |                                            |   |                      |        |      |   |         |        |   |   |         |       
|Total cost of revenues                                              |                                            |   | 21,422               |        |      |   | 26,696  |        |   |   | 24,830  |       
|                                                                    |                                            |   |                      |        |      |   |         |        |   |   |         |       
|Gross profit                                                        |                                            |   | 34,655               |        |      |   | 42,920  |        |   |   | 71,324  |       
|                                                                    |                                            |   |                      |        |      |   |         |        |   |   |         |       
|Operating expenses:                                                 |                                            |   |                      |        |      |   |         |        |   |   |         |       
|                                                                    | Sales and marketing                        |   |                      | 26,911 |      |   |         | 41,417 |   |   |         | 51,230 |  
|                                                                    | Research and development                   |   |                      | 16,397 |      |   |         | 16,963 |   |   |         | 18,750 |  
|                                                                    | General and administrative                 |   |                      | 8,328  |      |   |         | 12,820 |   |   |         | 13,567 |  
|                                                                    | Restructuring costs and other charges      |   |                      | 9,015  |      |   |         | 51,167 |   |   |         |       |  
|                                                                    | Amortization of goodwill                   |   |                      |       |      |   |         | 15,669 |   |   |         | 22,440 |  
|                                                                    | Amortization of acquired intangibles       |   |                      | 379    |      |   |         | 488    |   |   |         | 622    |  
|                                                                    |                                            |   |                      |        |      |   |         |        |   |   |         |       
|Total operating expenses                                            |                                            |   | 61,030               |        |      |   | 138,524 |        |   |   | 106,609 |       
|                                                                    |                                            |   |                      |        |      |   |         |        |   |   |         |       
|Loss from operations                                                |                                            |   | (26,375              | )      |      |   | (95,604 | )      |   |   | (35,285 | )     
|Other income (loss):                                                |                                            |   |                      |        |      |   |         |        |   |   |         |       
|                                                                    | Interest and other income (loss)           |   |                      | (500   | )    |   |         | 1,289  |   |   |         | 3,333  |  
|                                                                    | Impairment and loss on sale of investments |   |                      | (353   | )    |   |         | (1,244 | ) |   |         |       |  
|                                                                    |                                            |   |                      |        |      |   |         |        |   |   |         |       
|                                                                    |                                            |   | (853                 | )      |      |   | 45      |        |   |   | 3,333   |       
|                                                                    |                                            |   |                      |        |      |   |         |        |   |   |         |       
|Loss before income taxes                                            |                                            |   | (27,228              | )      |      |   | (95,559 | )      |   |   | (31,952 | )     
|Income taxes                                                        |                                            |   | 418                  |        |      |   | 386     |        |   |   | 503     |       
|                                                                    |                                            |   |                      |        |      |   |         |        |   |   |         |       
|Net loss                                                            |                                            | $ | (27,646              | )      |      | $ | (95,945 | )      |   | $ | (32,455 | )     
|                                                                    |                                            |   |                      |        |      |   |         |        |   |   |         |       
|Loss per share                                                      |                                            |   |                      |        |      |   |         |        |   |   |         |       
|                                                                    | Basic and diluted                          |   | $                    | (1.10  | )    |   | $       | (3.99  | ) |   | $       | (1.40  | )
|                                                                    |                                            |   |                      |        |      |   |         |        |   |   |         |       
|Weighted average number of shares used to
calculate loss per share: |                                            |   |                      |        |      |   |         |        |   |   |         |       
|                                                                    | Basic and diluted                          |   |                      | 25,120 |      |   |         | 24,039 |   |   |         | 23,173 |  
|                                                                    |                                            |   |                      |        |      |   |         |        |   |   |         |       

See accompanying Notes to the Consolidated Financial Statements.

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##### Table of Contents



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

|                                                                                |                          |                                                                                                                                              |        |                    |   |             |         |               |   |             |      |         |   |               |      |       |      |   |          |   |         |   |         |         |         |  
|------------------------------------------------------------------------------- | ------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------- | ------ | ------------------ | - | ----------- | ------- | ------------- | - | ----------- | ---- | ------- | - | ------------- | ---- | ----- | ---- | - | -------- | - | ------- | - | ------- | ------- | ------- | -
|                                                                                |                          |                                                                                                                                              |        | Common Shares and  |   |             |         |               |   |             |      |         |   |               |      |       |      |   |          |  
|                                                                                |                          |                                                                                                                                              |        | Additional Paid-in |   |             |         |               |   | Accumulated |      |         |   |               |      | Total
|                                                                                |                          |                                                                                                                                              |        | Capital            |   | Deferred    |         | Other         |   |             |      |         |   | Shareholders'
|                                                                                |                          |                                                                                                                                              |        |                    |   | Share-based |         | Comprehensive |   | Accumulated |      | Equity 
|                                                                                |                          |                                                                                                                                              |        | Shares             |   | Amount      |         | Compensation  |   | Loss        |      | Deficit |   | (Deficit)    
|                                                                                |                          |                                                                                                                                              |        |                    |   |             |         |               |   |             |      |         |   |              
|Balance, June 30, 2000                                                          |                          |                                                                                                                                              | 22,057 |                    |   | $           | 112,078 |               |   | $           | (193 | )       |   | $             |     |       |      | $ | (15,788  | ) |         | $ | 96,097  |        
|Comprehensive loss:                                                             |                          |                                                                                                                                              |        |                    |   |             |         |               |   |             |      |         |   |               |      |       |      |   |          |   |         |   |         |        
|                                                                                |                          | Net loss                                                                                                                                     |        |                    |  |             |         |               |  |             |      |         |  |               |      |       |     |   |          |   | (32,455 | ) |         |         | (32,455 | )
|                                                                                |                          | Unrealized loss on marketable investments                                                                                                    |        |                    |  |             |         |               |  |             |      |         |  |               |      |       | (203 | ) |          |   |        |   |         |         | (203    | )
|                                                                                |                          |                                                                                                                                              |        |                    |   |             |         |               |   |             |      |         |   |               |      |       |      |   |          |   |         |   |         |        
|                                                                                | Total comprehensive loss |                                                                                                                                              |        |                    |   |             |         |               |   |             |      |         |   |               |      |       |      |   |          |   |         |   |         | (32,658 | )      
|                                                                                |                          |                                                                                                                                              |        |                    |   |             |         |               |   |             |      |         |   |               |      |       |      |   |          |   |         |   |         |        
|Tax benefit from employee stock options                                         |                          |                                                                                                                                              |       |                    |   |             | 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 deferred 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 |        
|Comprehensive loss:                                                             |                          |                                                                                                                                              |        |                    |   |             |         |               |   |             |      |         |   |               |      |       |      |   |          |   |         |   |         |        
|                                                                                |                          | Net loss                                                                                                                                     |        |                    |  |             |         |               |  |             |      |         |  |               |      |       |     |   |          |   | (95,945 | ) |         |         | (95,945 | )
|                                                                                |                          | Write-down related to other-than-temporary
declines in the value of marketable investments
previously recognized in other comprehensive loss |        |                    |  |             |         |               |  |             |      |         |  |               |      |       | 348  |   |          |   |        |   |         |         | 348     |  
|                                                                                |                          | Realized loss on marketable investments previously
recognized in other comprehensive loss                                                    |        |                    |  |             |         |               |  |             |      |         |  |               |      |       | 23   |   |          |   |        |   |         |         | 23      |  
|                                                                                |                          | Unrealized loss on marketable investments                                                                                                    |        |                    |  |             |         |               |  |             |      |         |  |               |      |       | (258 | ) |          |   |        |   |         |         | (258    | )
|                                                                                |                          |                                                                                                                                              |        |                    |   |             |         |               |   |             |      |         |   |               |      |       |      |   |          |   |         |   |         |        
|                                                                                | Total comprehensive loss |                                                                                                                                              |        |                    |   |             |         |               |   |             |      |         |   |               |      |       |      |   |          |   |         |   |         | (95,832 | )      
|                                                                                |                          |                                                                                                                                              |        |                    |   |             |         |               |   |             |      |         |   |               |      |       |      |   |          |   |         |   |         |        
|Tax benefit from employee stock options                                         |                          |                                                                                                                                              |       |                    |   |             | 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 deferred share-based compensation                               |                          |                                                                                                                                              |       |                    |   |             |        |               |   |             | 58   |         |   |               |     |       |      |   |         |   |         |   | 58      |        
|                                                                                |                          |                                                                                                                                              |        |                    |   |             |         |               |   |             |      |         |   |               |      |       |      |   |          |   |         |   |         |        
|Balance, June 30, 2002                                                          |                          |                                                                                                                                              | 24,096 |                    |   | $           | 178,084 |               |   | $           | (23  | )       |   | $             | (90  | )     |      | $ | (144,188 | ) |         | $ | 33,783  |        
|Comprehensive loss:                                                             |                          |                                                                                                                                              |        |                    |   |             |         |               |   |             |      |         |   |               |      |       |      |   |          |   |         |   |         |        
|                                                                                |                          | Net loss                                                                                                                                     |        |                    |  |             |         |               |  |             |      |         |  |               |      |       |     |   |          |   | (27,646 | ) |         |         | (27,646 | )
|                                                                                |                          | Realized loss on marketable investments previously
recognized in other comprehensive loss                                                    |        |                    |  |             |         |               |  |             |      |         |  |               |      |       | 90   |   |          |   |        |   |         |         | 90      |  
|                                                                                |                          |                                                                                                                                              |        |                    |   |             |         |               |   |             |      |         |   |               |      |       |      |   |          |   |         |   |         |        
|                                                                                | Total comprehensive loss |                                                                                                                                              |        |                    |   |             |         |               |   |             |      |         |   |               |      |       |      |   |          |   |         |   |         | (27,556 | )      
|                                                                                |                          |                                                                                                                                              |        |                    |   |             |         |               |   |             |      |         |   |               |      |       |      |   |          |   |         |   |         |        
|Issuance of common shares on exercise of
stock options                          |                          |                                                                                                                                              | 12     |                    |   |             | 9       |               |   |             |     |         |   |               |     |       |      |   |         |   |         |   | 9       |        
|Issuance of common shares related to Employee
Stock Purchase Plan               |                          |                                                                                                                                              | 205    |                    |   |             | 285     |               |   |             |     |         |   |               |     |       |      |   |         |   |         |   | 285     |        
|Issuance of common shares in connection with
acquisition earn-outs              |                          |                                                                                                                                              | 679    |                    |   |             | 1,235   |               |   |             |     |         |   |               |     |       |      |   |         |   |         |   | 1,235   |        
|Issuance of common shares on acquisition of
MarketFirst Software, Inc. (note 2) |                          |                                                                                                                                              | 725    |                    |   |             | 319     |               |   |             |     |         |   |               |     |       |      |   |         |   |         |   | 319     |        
|Amortization of deferred share-based compensation                               |                          |                                                                                                                                              |       |                    |   |             |        |               |   |             | 23   |         |   |               |     |       |      |   |         |   |         |   | 23      |        
|                                                                                |                          |                                                                                                                                              |        |                    |   |             |         |               |   |             |      |         |   |               |      |       |      |   |          |   |         |   |         |        
|Balance, June 30, 2003                                                          |                          |                                                                                                                                              | 25,717 |                    |   | $           | 179,932 |               |   | $           |     |         |   | $             |     |       |      | $ | (171,834 | ) |         | $ | 8,098   |        
|                                                                                |                          |                                                                                                                                              |        |                    |   |             |         |               |   |             |      |         |   |               |      |       |      |   |          |   |         |   |         |        

See accompanying Notes to the Consolidated Financial Statements.

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##### Table of Contents



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

|                                                          |                                                                                           |                                                              |         |                      |       |      |        |         |        |   |         |         |        |  
|--------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ------- | -------------------- | ----- | ---- | ------ | ------- | ------ | - | ------- | ------- | ------ | -
|                                                          |                                                                                           |                                                              |         | Years ended June 30,
|                                                          |                                                                                           |                                                              |         |                     
|                                                          |                                                                                           |                                                              |         | 2003                 |       | 2002 |        | 2001   
|                                                          |                                                                                           |                                                              |         |                      |       |      |        |        
|Cash flows from operating activities:                     |                                                                                           |                                                              |         |                      |       |      |        |         |        |   |         |        
|                                                          | Net loss                                                                                  |                                                              | $       | (27,646              | )     |      | $      | (95,945 | )      |   | $       | (32,455 | )     
|                                                          | Adjustments to reconcile net loss to net cash provided by (used in)
operating activities: |                                                              |         |                      |       |      |        |         |        |   |         |         |       
|                                                          |                                                                                           | Depreciation of property and equipment                       |         |                      | 2,047 |      |        |         | 4,145  |   |         |         | 4,556  |  
|                                                          |                                                                                           | Amortization of goodwill                                     |         |                      |      |      |        |         | 15,669 |   |         |         | 22,440 |  
|                                                          |                                                                                           | Amortization of acquired intangibles                         |         |                      | 379   |      |        |         | 488    |   |         |         | 622    |  
|                                                          |                                                                                           | Amortization of deferred share-based compensation            |         |                      | 23    |      |        |         | 58     |   |         |         | 112    |  
|                                                          |                                                                                           | Loss on disposal of other assets                             |         |                      | 78    |      |        |         | 1,244  |   |         |         |       |  
|                                                          |                                                                                           | Non-cash restructuring costs                                 |         |                      | 882   |      |        |         | 7,975  |   |         |         |       |  
|                                                          |                                                                                           | Non-cash costs related to cost of licenses                   |         |                      |      |      |        |         | 783    |   |         |         |       |  
|                                                          |                                                                                           | Impairment of goodwill and other purchased intangible assets |         |                      |      |      |        |         | 32,987 |   |         |         | 948    |  
|                                                          |                                                                                           | Tax benefit from employee stock option plans                 |         |                      |      |      |        |         | 378    |   |         |         | 876    |  
|                                                          |                                                                                           | Non-cash share-based compensation expense                    |         |                      |      |      |        |         |       |   |         |         | 65     |  
|                                                          |                                                                                           | Change in operating assets and liabilities                   |         |                      | 81    |      |        |         | 7,896  |   |         |         | (1,368 | )
|                                                          |                                                                                           |                                                              |         |                      |       |      |        |         |        |   |         |        
|                                                          | Net cash used in operating activities                                                     |                                                              |         | (24,156              | )     |      |        | (24,322 | )      |   |         | (4,204  | )     
|                                                          |                                                                                           |                                                              |         |                      |       |      |        |         |        |   |         |        
|Cash flows from investing activities:                     |                                                                                           |                                                              |         |                      |       |      |        |         |        |   |         |        
|                                                          | Sales, maturities and (purchases) of short-term investments, net                          |                                                              |         | 10,298               |       |      |        | 34,507  |        |   |         | (24,680 | )     
|                                                          | Sales (purchases) of long-term investments                                                |                                                              |         | 898                  |       |      |        | 250     |        |   |         | (1,544  | )     
|                                                          | Sales (purchases) of other assets                                                         |                                                              |         | 120                  |       |      |        | (4,039  | )      |   |         | (4,732  | )     
|                                                          | Acquisition of businesses, net of cash acquired (note 2)                                  |                                                              |         | 2,515                |       |      |        |        |        |   |         | (5,682  | )     
|                                                          | Purchase of property and equipment                                                        |                                                              |         | (1,704               | )     |      |        | (1,211  | )      |   |         | (6,833  | )     
|                                                          | Proceeds on disposal of property and equipment                                            |                                                              |         | 16                   |       |      |        |        |        |   |         |        |       
|                                                          | Proceeds from sale and leaseback of assets                                                |                                                              |         |                     |       |      |        | 1,277   |        |   |         |        |       
|                                                          |                                                                                           |                                                              |         |                      |       |      |        |         |        |   |         |        
|Net cash provided by (used in) investing activities       |                                                                                           |                                                              | 12,143  |                      |       |      | 30,784 |         |        |   | (43,471 | )      
|                                                          |                                                                                           |                                                              |         |                      |       |      |        |         |        |   |         |        
|Cash flows from financing activities:                     |                                                                                           |                                                              |         |                      |       |      |        |         |        |   |         |        
|                                                          | Repayment of obligations under capital lease                                              |                                                              |         | (376                 | )     |      |        | (365    | )      |   |         | (118    | )     
|                                                          | Proceeds from issuance of common shares                                                   |                                                              |         | 294                  |       |      |        | 978     |        |   |         | 4,550   |       
|                                                          | Net proceeds from equity financing                                                        |                                                              |         |                     |       |      |        |        |        |   |         | 51,756  |       
|                                                          |                                                                                           |                                                              |         |                      |       |      |        |         |        |   |         |        
|Net cash (used in) provided by financing activities       |                                                                                           |                                                              | (82     | )                    |       |      | 613    |         |        |   | 56,188  |        
|                                                          |                                                                                           |                                                              |         |                      |       |      |        |         |        |   |         |        
|Net (decrease) increase in cash and cash equivalents      |                                                                                           |                                                              | (12,095 | )                    |       |      | 7,075  |         |        |   | 8,513   |        
|Cash and cash equivalents, beginning of year              |                                                                                           |                                                              | 20,322  |                      |       |      | 13,247 |         |        |   | 4,734   |        
|                                                          |                                                                                           |                                                              |         |                      |       |      |        |         |        |   |         |        
|Cash and cash equivalents, end of year                    |                                                                                           | $                                                            | 8,227   |                      |       | $    | 20,322 |         |        | $ | 13,247  |        
|                                                          |                                                                                           |                                                              |         |                      |       |      |        |         |        |   |         |        
|Supplemental cash flow disclosure:                        |                                                                                           |                                                              |         |                      |       |      |        |         |        |   |         |        
|                                                          | Income taxes (recovered) paid                                                             |                                                              | $       | 208                  |       |      | $      | 316     |        |   | $       | (132    | )     
|                                                          |                                                                                           |                                                              |         |                      |       |      |        |         |        |   |         |        
|                                                          | Interest paid                                                                             |                                                              | $       | 21                   |       |      | $      | 23      |        |   | $       | 10      |       
|                                                          |                                                                                           |                                                              |         |                      |       |      |        |         |        |   |         |        
|Supplemental non-cash investing and financing disclosure: |                                                                                           |                                                              |         |                      |       |      |        |         |        |   |         |        
|                                                          | Issuance of common shares and options on acquisitions                                     |                                                              | $       | 319                  |       |      | $      |        |        |   | $       | 7,404   |       
|                                                          |                                                                                           |                                                              |         |                      |       |      |        |         |        |   |         |        

See accompanying Notes to the Consolidated Financial Statements.

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##### Table of Contents



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 develops customer relationship management software
and, together with its partners, provides its software and related
business consulting services to medium-sized businesses and divisions of
large businesses worldwide. Pivotals software products enable companies
to acquire, serve, and manage customers efficiently and intelligently and
help them to manage collaborative relationships between customers,
business partners and employees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | 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
subsidiaries, all of which are wholly owned. All intercompany accounts
and transactions have been eliminated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | 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 amounts reported in the
financial statements and accompanying notes. Estimates are used for, but
not limited to, revenue recognition, the accounting for doubtful accounts,
the determination of fair value of acquired intangible assets and
goodwill, depreciation and amortization, asset impairments, income taxes,
restructuring charges and contingencies. Actual results may differ from
those estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | Revenue Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | Pivotal generates revenues through two sources: (i) license revenues and
(ii) services and maintenance revenues. 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, SOP 98-9, and related interpretations including
Technical Practice Aids.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | License revenues are normally generated from licensing with end-users,
value-added resellers (VARs) 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
receivable from the VARs upon sell-through to the end-customer. When
software licenses are sold incorporating third-party software products or
sold with third-party products that complement its software, Pivotal
recognizes as revenue the gross amount of sales of third-party product.
The recognition of gross revenue is in accordance with criteria
established in Emerging Issues Task Force Issue (EITF) No. 99-19,
Reporting Revenue Gross as a Principal versus Net as an Agent: the Company
is ultimately responsible for the fulfillment and acceptability of the
products purchased, has full latitude in establishing pricing and assumes
all credit and general inventory risks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | Revenues from software license agreements are recognized upon delivery of
the software if persuasive evidence of an arrangement exists, collection
of the fee is probable, the fee is fixed or determinable, and
vendor-specific objective evidence exists to allocate the total fee to
individual elements of a multiple element 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. Pivotal defers revenue for any undelivered elements,
and recognizes revenue when the product is delivered or over the period in
which the service is performed, in accordance with its revenue recognition
policy for each respective element. 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.

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##### Table of Contents



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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Revenue Recognition (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | Services and maintenance revenues are generated from the provision of
consulting services, education services, hosting services and maintenance
and support services. Consulting revenues are related to implementation
services provided under separate service arrangements with Pivotals
customers and are primarily performed on a time and materials basis.
Revenues from consulting services are recognized when the time and
expenses are incurred and become billable to the customer. Revenues from
education services are recognized as services are provided to the
customer. Hosting and maintenance and support revenues are recognized
ratably over the term of the contract, typically one year. On occasion,
the Company utilizes third-party consultants to assist in implementations
or installations originated by the Company. In these cases, in accordance
with criteria established in EITF 99-19 (as described above), the revenue
for these implementations and installations is typically recognized on a
gross basis. In these cases, the Company ultimately manages the
engagements where third-party consultants are used; the consultants are
directly managed and supervised by the Company.
|  
|   |  | If a transaction includes both license and service elements, license fee
revenues are recognized separately on delivery 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | Concurrent and Nonmonetary Transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | The Companys customers include several of its suppliers and on occasion,
the Company has purchased goods or services for the Companys operations
from these vendors at or about the same time the Company has licensed its
software to these same organizations (a Concurrent Transaction). The
Company accounts for Concurrent Transactions in accordance with APB No.
29, Accounting for Nonmonetary Transactions,and EITF No. 01-02,
Interpretation of APB Opinion 29, collectively referred to as APB 29.
Concurrent Transactions are separately negotiated, settled in cash, and
recorded at terms the Company considers to be arms length.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | Prior to recognizing any revenue from a Concurrent Transaction, the
Company ensures that: (i) the transaction meets its standard revenue
recognition policies, as discussed above; (ii) the transaction represents
the culmination of the earnings process; and (iii) all goods or services
purchased by the Company are necessary for its operations and are expected
to be placed into service within a reasonable period after purchase. If
the Concurrent Transaction meets these requirements, the Company records
the revenue at Fair Value, as defined by APB 29. The Company determines
Fair Value based on a comparison of cash transactions for its software
that are of similar size and on similar terms as the Concurrent
Transaction or the Fair Value of the goods or services purchased by the
Company, whichever is more readily determinable.                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | 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 other services personnel, as well as the cost of services
provided by third-parties contracted by Pivotal to perform implementations
or hosting. Overhead costs are comprised of facilities, communications and
general office expenses and are allocated to departments based on
headcount. In the years ended June 30, 2003, 2002 and 2001, third-party
royalty costs totaled $1,639, $1,672, and $1,992, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

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##### Table of Contents



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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | In accordance with 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 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, 2003 and 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, Pivotal held investments in publicly traded equity
securities of companies in which its ownership interest was less than 20%
of the voting rights and over which it did not exercise significant
influence. During fiscal 2003, the Company disposed of its investments in
public companies and recorded a loss on sale of $78. The investments had
been included in other assets and had been recorded at fair value, which
was determined based on quoted market prices. Net unrealized holding
gains and losses were excluded from net loss and included in accumulated
other comprehensive loss until such gains or losses were realized. If
management determined that an investments decline in fair value was an
other-than-temporary decline, an impairment charge was included in other
income (loss). During the year ended June 30, 2002, Pivotal recorded a
write-down of $848 related to other-than-temporary declines in the value
of its investments in public companies.                                                                                                                                                                                                   
|  
|   |  | 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 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. The
Company monitors these investments for factors indicating other than
temporary impairment and takes a charge to net earnings (loss) when
appropriate. 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 private financing completed by the
investee, as well as market prices of comparable public companies. During
the year ended June 30, 2003 and 2002, respectively, Pivotal recorded
charges of $275 and $375 related to the impairment in the value of
investments in non-public companies.

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##### Table of Contents



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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Fair Value of Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | At June 30, 2003, Pivotal has the following financial instruments: cash
and cash equivalents, short-term investments, accounts receivable,
accounts payable and accrued liabilities, long-term debt and investments
in non-public companies. At June 30, 2002, in addition to the
aforementioned financial instruments, Pivotal also had investments in
public companies. The carrying value of cash and cash equivalents,
short-term investments, accounts receivable, accounts payable, accrued
liabilities and the current portion of restructuring liabilities
approximates their fair value based on their liquidity or based on their
short-term nature. The fair value of Pivotals obligations under capital
leases and long-term debt at June 30, 2003 and 2002 approximated their
carrying value. The fair value of the non-current portion of
restructuring liabilities is not readily determined.
|  
|   |  | At June 30, 2002, the fair values of investments in publicly traded
companies were determined using quoted market prices for those securities.
These were disposed of during fiscal 2003. The fair values of investments
in non-publicly traded companies were not readily determinable. At June
30, 2003, these are fully provided for.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | 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 ten
years, or the useful life of the related improvement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Goodwill and Acquired Intangibles                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | The Financial Accounting Standards Board (FASB) issued SFAS No. 141
Business Combinations (SFAS 141) and SFAS No. 142 Goodwill and Other
Intangible Assets (SFAS 142) in July 2001. SFAS 141 requires that all
business combinations be accounted for using the purchase method, thereby
prohibiting the pooling-of-interests method. SFAS 141 also specifies
criteria for recognizing and reporting intangible assets apart from
goodwill; however, assembled workforce must be recognized and reported in
goodwill. SFAS 142 requires that intangible assets with an indefinite life
should not be amortized until their life is determined to be finite, and
all other intangible assets must be amortized over their useful life. SFAS
142 also requires that goodwill not be amortized but instead tested for
impairment at least annually and more frequently upon the occurrence of
certain events.                                                                                                                                                                                                                                                                                                 
|
| |  | The Company adopted SFAS 141 effective July 1, 2001 and SFAS 142 on a
prospective basis on July 1, 2002. The adoption of SFAS 141 did not have
an impact on Pivotals financial position, results of operations and cash
flows for prior periods. There was no cumulative transition adjustment
upon adoption of SFAS 142. SFAS 141 and SFAS 142 required the Company to
perform the following as of December 31, 2002: (i) review goodwill and
intangible assets for possible reclassifications; (ii) reassess the lives
of intangible assets; and (iii) perform a transitional goodwill impairment
test. The Company reviewed the balances of goodwill and identifiable
intangibles and determined that the Company was required to reclassify
acquired intangibles related to assembled workforce, totaling $235, to
goodwill. No amounts were reclassified from goodwill to acquired
intangibles. The Company also reviewed the useful lives of its
identifiable intangible assets and determined that the original estimated
lives remain appropriate. The Company completed the transitional goodwill
impairment test and determined that the Company did not have a
transitional impairment of goodwill.

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##### Table of Contents



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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Goodwill and Acquired Intangibles (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | As required by SFAS 142, the Company has not amortized goodwill associated
with acquisitions completed after June 30, 2002 for any period presented,
and has ceased amortization of goodwill associated with acquisitions
completed prior to July 1, 2002. Prior July 1, 2002, the Company amortized
goodwill associated with the pre-July 1, 2002 acquisitions using the
straight-line method over three years. Identifiable intangibles (acquired
technology) are currently amortized using the straight-line method over
the useful lives of the assets, ranging from 26 to 36 months.                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | Deferred Revenue                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | Deferred revenue primarily relates to license, service and maintenance
agreements, which have been paid for by customers prior to the performance
of those services or where all criteria for revenue recognition have not
been satisfied. Typically, maintenance services will be provided in the
next twelve months.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | Impairment of Long-lived Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | Long-lived assets, other than goodwill 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 held for use is
based on the fair value of the asset. Long-lived assets classified as
held for sale are reported at the lower of carrying value and fair value
less estimated selling costs. In the years ended June 30, 2003, 2002 and
2001, Pivotal recorded impairment losses of $868, $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. The
charge for fiscal 2002 included $5,846 related to impairments of capital
assets and $32,987 related to the impairment of goodwill and other
purchased intangible assets.
|  
|   |  | Research and Development Costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | Research and development costs consist primarily of software
development costs, including those relating to payroll and benefits, material and services used in product development, and overhead, and 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 generally 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, 2003, 2002 and 2001, no single customer accounted for more
than 10% of revenues.                                                             

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##### Table of Contents



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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | 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 or speculative 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, 2003 and June 30, 2002, Pivotal had no
outstanding forward contracts.
|  
|   |  | Foreign Currency Translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | The functional currency of Pivotal and its foreign 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 the translation of transactions denominated
in a foreign currency other than the U.S. dollar are included 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
$1,629, $1,157, and $1,305 in the years ended June 30, 2003, 2002, and
2001, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | Restructuring-related Costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | The Companys restructuring charges are comprised of (i) severance and
associated employee termination costs related to the reduction of the
Companys workforce; (ii) lease termination costs and other costs
associated with the consolidation of facilities, including the impairment
of certain assets; and (iii) contract settlement costs including penalties
expected to be incurred due to the Companys withdrawal from certain
purchase and partner contracts.                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | The FASB issued SFAS No. 146, Accounting for Costs Associated with Exit
and Disposal Activities, in July 2002. SFAS 146 revises the accounting for
exit and disposal activities under EITF 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity.
SFAS 146 requires exit or disposal costs be recorded when they are
incurred and can be measured at fair value. Commitment to a plan to exit
an activity or dispose of long-lived assets is no longer sufficient to
record a one-time charge for most anticipated costs. The provisions of
Statement 146 were effective prospectively for exit or disposal activities
initiated after December 31, 2002.                                                                                                                                                                                                          
|  
|   |  | The Company adopted SFAS 146 effective January 1, 2003. During the quarter
ended June 30, 2003, the Company recorded charges of $452 related to
restructuring activities which has been accounted for in accordance with
SFAS 146. The adoption of SFAS 146 did not impact the Companys
restructuring obligation recognized to December 31, 2002, as these
obligations must continue to be accounted for in accordance with EITF 94-3
and other applicable pre-existing guidance.                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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##### Table of Contents



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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | Pivotal issues stock options to its employees and outside directors and
provides employees the right to purchase its stock pursuant to stockholder
approved stock option and employee stock purchase programs. The Company
accounts for its stock-based compensation plans under the intrinsic value
method of accounting as defined by Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Accordingly, the Company records deferred compensation
charges related to its employee stock options in 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.
Deferred compensation expense of $473 was recorded during 1999 and was
fully amortized over the four years ending June 30, 2003. No additional
stock-based compensation expense is reflected in net loss for the years
ended June 30, 2003, 2002 and 2001 as all options granted under these
plans had an exercise price equal to or greater than the fair market value
of the underlying common stock on the date of grant.
|  
|   |  | Pivotal applies the disclosure provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, as amended by SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure. Pursuant to these
provisions, stock options and stock purchases are valued at the grant date
using fair values as computed using the Black-Scholes valuation model and
the resultant compensation expense is recognized ratably over the vesting
period or the six-month purchase period. Had the Company accounted for its
share-based compensation plans under the fair value method, the pro forma
net loss and basic and diluted loss per share would have been as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

|                                 |                                                                                                                 |   |                      |         |      |   |          |         |   |   |         |         |  
|-------------------------------- | --------------------------------------------------------------------------------------------------------------- | - | -------------------- | ------- | ---- | - | -------- | ------- | - | - | ------- | ------- | -
|                                 |                                                                                                                 |   | Years Ended June 30,
|                                 |                                                                                                                 |   |                     
|                                 |                                                                                                                 |   | 2003                 |         | 2002 |   | 2001    
|                                 |                                                                                                                 |   |                      |         |      |   |         
|Net loss, as reported            |                                                                                                                 | $ | (27,646              | )       |      | $ | (95,945  | )       |   | $ | (32,455 | )      
|                                 | Add: Deferred share-based compensation                                                                          |   |                      | 23      |      |   |          | 58      |   |   |         | 112     |  
|                                 | Less: Total stock-based compensation
expense determined under the fair
       value based method for all awards |   |                      | (14,512 | )    |   |          | (23,035 | ) |   |         | (17,047 | )
|                                 |                                                                                                                 |   |                      |         |      |   |          |         |   |   |         |        
|Pro forma net loss               |                                                                                                                 | $ | (42,135              | )       |      | $ | (118,922 | )       |   | $ | (49,390 | )      
|                                 |                                                                                                                 |   |                      |         |      |   |          |         |   |   |         |        
|Basic and diluted loss per share |                                                                                                                 |   |                      |         |      |   |          |         |   |   |         |        
|                                 | As reported                                                                                                     |   | $                    | (1.10   | )    |   | $        | (3.99   | ) |   | $       | (1.40   | )
|                                 | Pro forma                                                                                                       |   | $                    | (1.68   | )    |   | $        | (4.95   | ) |   | $       | (2.13   | )



| |  | Option valuation models require the input of highly subjective
assumptions, including the expected stock price volatility. Any changes in
the subjective assumptions can materially affect the fair value estimates.
The fair value of the options granted and the employees stock purchase
rights under the employee stock purchase program were estimated at the
date of grant using the Black-Scholes valuation model with the following
weighted average assumptions:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                               |  |                      |           |           |  |           |       |   |  |  |       |  
|-------------------------------------------------------------- |  | -------------------- | --------- | --------- |  | --------- | ----- | - |  |  | ----- | -
|                                                               |  | Years Ended June 30,
|                                                               |  |                     
|Employee and Director Stock Options                            |  | 2003                 |           | 2002      |  | 2001     
|                                                               |  |                      |           |           |  |          
|Volatility factor of expected market price of Pivotals shares |  |                      | 123.0     | %         |  |           | 118.4 | % |  |  | 121.2 | %
|Dividend yield                                                 |  |                     |           |          |  |         
|Weighted average expected life of stock options                |  | 4.0 years            |           | 4.0 years |  | 4.0 years
|Risk free interest rates                                       |  |                      | 2.5 - 3.0 | %         |  |           | 4.4   | % |  |  | 5.0   | %
|Weighted average fair value at grant date                      |  | $0.60                |           | $4.35     |  | $20.76   

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##### Table of Contents



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 (Continued)                  

|                                                               |  |                      |           |           |  |           |       |   |  |  |       |  
|-------------------------------------------------------------- |  | -------------------- | --------- | --------- |  | --------- | ----- | - |  |  | ----- | -
|                                                               |  | Years Ended June 30,
|                                                               |  |                     
|Employee Stock Purchase Plan                                   |  | 2003                 |           | 2002      |  | 2001     
|                                                               |  |                      |           |           |  |          
|Volatility factor of expected market price of Pivotals shares |  |                      | 123.0     | %         |  |           | 118.4 | % |  |  | 121.2 | %
|Dividend yield                                                 |  |                     |           |          |  |         
|Weighted average expected life of stock options                |  | 0.5 years            |           | 0.5 years |  | 0.5 years
|Risk free interest rates                                       |  |                      | 2.5 - 3.0 | %         |  |           | 4.4   | % |  |  | 5.0   | %
|Weighted average fair value at grant date                      |  | $0.47                |           | $2.68     |  | $6.79    



| |  | 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 loss per share is computed using the weighted
average number of common shares and, when dilutive, potential shares from
stock options and redeemable convertible preferred shares, using the
treasury method. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Reclassifications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Certain prior year amounts have been reclassified in order to conform to
the current year presentation. Such reclassifications had no impact on the
results of operations or shareholders equity for any year presented.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | During fiscal 2002, the Company included $2,409 of charges related to the
withdrawal from certain purchase and partner contracts in Restructuring
costs and other charges. The Company has subsequently reclassified $783
to Cost of revenues   License and $1,626 to
Cost of revenues  Services and maintenance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Recent Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Accounting for Revenue Arrangements with Multiple Deliverables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | In November 2002, the EITF reached a consensus on Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables. Issue 00-21 provides guidance on
how to account for arrangements that involve the delivery or performance
of multiple products, services and/or rights to use assets. The provisions
of Issue 00-21 will apply to revenue arrangements entered into in fiscal
periods beginning after June 15, 2003. Pivotal does not believe that the
adoption of Issue 00-21 will have a material effect on its consolidated
financial position, results of operations or cash flows.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Accounting for and Disclosure of Guarantees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires
certain guarantees to be recorded at fair value upon issuance of a
guarantee, which is different from current practice, where a liability is
recorded when a loss is probable and reasonably estimable. In addition,
FIN 45 also requires a guarantor to make significant new disclosures, even
when the likelihood of making any payments under the guarantee is remote,
which is another change from current practice. In general, FIN 45 applies
to contracts or indemnification agreements that contingently require the
guarantor to make payments to the guaranteed party based on changes in an
underlying obligation that is related to an asset, liability or an equity
security of the guaranteed party. Pivotal has applied the recognition
provisions of FIN 45 prospectively to guarantees issued after December 15,
2002. The adoption of FIN 45 did not have a material impact on its
consolidated financial position, results of operations or cash flows.

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##### Table of Contents



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 (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | Consolidation of Variable Interest Entities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities,an interpretation of
Accounting Research Bulletin No. 51, Consolidated Financial Statements.
FIN 46 establishes accounting guidance for consolidation of variable
interest entities that function to support the activities of the primary
beneficiary. FIN 46 applies to any business enterprise, both public and
private, that has a controlling interest, contractual relationship or
other business relationship with a variable interest entity. Pivotal
believes that it has no investment in or contractual relationship or other
business relationship with a variable interest entity and therefore the
adoption did not have any impact on its consolidated financial position or
results of operations. However, if the Company enters into any such
arrangement with a variable interest entity in the future, its
consolidated financial position or results of operations may be adversely
impacted.
|  
|   |  | Amendment of Statement 133 on Derivative Instruments and Hedging
Activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | In April 2003, the FASB issued Statement No. 149 (SFAS No. 149), Amendment
of Statement 133 on Derivative Instruments and Hedging Activities. SFAS
No. 149 is intended to result in more consistent reporting of contracts as
either freestanding derivative instruments subject to Statement 133 in its
entirety, or as hybrid instruments with debt host contracts and embedded
derivative features. In addition, SFAS No. 149 clarifies the definition of
a derivative by providing guidance on the meaning of initial net
investments related to derivatives. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003. Pivotal does not
believe the adoption of SFAS No. 149 will have a material effect on its
consolidated financial position, results of operations or cash flows.                                                                                                                                                                                                         
|  
|   |  | Financial Instruments with Characteristics of Both Liabilities and Equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | In May 2003, the FASB issued Statement No. 150 (SFAS No. 150), Accounting
for Certain Financial Instruments with Characteristics of both Liabilities
and Equity. SFAS No. 150 establishes standards for classifying and
measuring as liabilities certain financial instruments that embody
obligations of the issuer and have characteristics of both liabilities and
equity. SFAS No. 150 represents a significant change in practice in the
accounting for a number of financial instruments, including mandatorily
redeemable equity instruments and certain equity derivatives. SFAS No. 150
is effective for all financial instruments created or modified after May
31, 2003, and to other instruments as of September 1, 2003. The Company
will adopt the provisions of SFAS No. 150 on July 1, 2003. Pivotal does
not expect that the adoption of this Statement will have a material impact
on its results of operations and financial position.                                                                      
|  
|2. |  | BUSINESS COMBINATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | During the years ended June 30, 2003 and 2001, 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | Fiscal 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | MarketFirst Software, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | On October 23, 2002, Pivotal acquired 100% of MarketFirst Software, Inc.
(MarketFirst), a privately-held company based in Mountain View, California
that provides technology to help companies automate their marketing
processes. MarketFirsts marketing automation software extends the Pivotal
software suite and expands Pivotals revenue opportunity with new and
existing customers. Pivotal paid an aggregate purchase price of $584
consisting of 725 common shares and cash of $265.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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##### Table of Contents



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 paid by Pivotal for MarketFirst, including
acquisition costs, was allocated based on estimated fair values on the
acquisition date as follows:

|                                                        |                                    |   |        |     | 
|------------------------------------------------------- | ---------------------------------- | - | ------ | --- | 
|Identifiable assets acquired (including cash of $2,780) |                                    | $ | 5,742  |    
|Liabilities assumed                                     |                                    |   | (8,354 | )  
|                                                        |                                    |   |        |    
|Net identifiable liabilities acquired                   |                                    |   | (2,612 | )  
|Goodwill                                                |                                    |   | 2,250  |    
|Acquired intangibles                                    |                                    |   | 946    |    
|                                                        |                                    |   |        |    
|Purchase price                                          |                                    | $ | 584    |    
|                                                        |                                    |   |        |    
|Consideration                                           |                                    |   |        |    
|                                                        | Cash                               |   | $      | 265 | 
|                                                        | Fair value of common shares issued |   |        | 319 | 
|                                                        |                                    |   |        |    
|                                                        |                                    | $ | 584    |    
|                                                        |                                    |   |        |    



| |  | The fair value of the common shares of Pivotal issued in connection with
the acquisition was determined by taking an average closing 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.                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Prior to the date of acquisition by Pivotal, MarketFirst implemented
restructuring plans that included a reduction in headcount and facilities
abandonment to align its expenses and revenue levels. The fair value of
obligations related to this restructuring, which consist principally of
facilities lease obligations and employee severance, were recorded as
liabilities on the consolidated financial statements of Pivotal as at the
date of the acquisition. Of the remaining balance of this restructuring
liability of $1,837 at June 30, 2003, $1,270 will be paid over the next 12
month period, and the remaining balance of $567 will be paid over the
associated lease terms, which range from one to two years.
|
| |  | The following table presents the unaudited pro forma results of operations
for informational purposes assuming Pivotal acquired MarketFirst at the
beginning of fiscal 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|                                 |  |          |         |      |  |   |          |  
|-------------------------------- |  | -------- | ------- | ---- |  | - | -------- | -
|                                 |  | June 30,
|                                 |  |         
|                                 |  | 2003     |         | 2002
|                                 |  |          |         |     
|Total revenues                   |  | $        | 58,022  |      |  | $ | 80,638   |  
|Net loss                         |  | $        | (36,466 | )    |  | $ | (120,547 | )
|Basic and diluted loss per share |  | $        | (1.44   | )    |  | $ | (4.87    | )



| |  | The pro forma net loss for the years ended June 30, 2003 and 2002,
respectively, includes $12,726 and $56,712 for MarketFirsts restructuring
costs and other charges, and charges of $0 and $1,268, for discontinued
operations. This information may not necessarily be indicative of the
future combined results of operations of Pivotal and MarketFirst.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents



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 (Ionysys), 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. (Project One), 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 original agreement for the acquisition of Project One also provided
for additional consideration to be paid based on achieving certain targets
over the subsequent three years. As of June 30, 2003 Pivotal had paid a
total of $437 in earn-out payments and accrued $507 related to expected
additional consideration to be paid to the former owners of Project One.
As of June 30, 2003, Pivotal issued 642 shares in connection with the
acquisition of Project One and has recorded this as additional purchase
price.
|  
|   |  | Software Spectrum CRM, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | On December 5, 2000, Pivotal acquired 100% of Software Spectrum CRM, Inc.
(Software Spectrum), a company based in Dallas, Texas, which 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. (Inform), 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.                                                                                                                                                                          
|  
|   |  | Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | Other acquisitions consist of asset acquisitions of implementation
services businesses during the year ended June 30, 2001.                                                                                                                                                                                                                                                                                                                                                                                                     

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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:

|                                                |                                    |   |         |       |     |   |          |     |          |   |        |       |       |   |        |     |  |   |       |       |  |   |        |       | 
|----------------------------------------------- | ---------------------------------- | - | ------- | ----- | --- | - | -------- | --- | -------- | - | ------ | ----- | ----- | - | ------ | --- |  | - | ----- | ----- |  | - | ------ | ----- | 
|                                                |                                    |   |         |       |     |   | Project  |     | Software |   |        |       |       |   |        |     |  |   |       |       | 
|                                                |                                    |   | Ionysys |       | One |   | Spectrum |     | Inform   |   | Other  |       | Total
|                                                |                                    |   |         |       |     |   |          |     |          |   |        |       |      
|Identifiable 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                                        |                                    |   | 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 (excluding 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 |      
|                                                |                                    |   |         |       |     |   |          |     |          |   |        |       |       |   |        |     |  |   |       |       |  |   |        |      



|   |  | The fair value of the common shares of Pivotal issued in connection with
the acquisitions was determined by taking an average closing 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|3. |  | RESTRUCTURING COSTS AND OTHER CHARGES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | On July 9, 2003, the Company announced that it was undertaking a corporate
restructuring to further reduce its cost structure. In the first quarter
of fiscal 2004, Pivotal expects to incur restructuring charges in the
range of $1,800 to $2,000 related to this initiative. Cost reductions will
come from the transitioning to an exclusive partner model in
non-profitable markets outside North America, the elimination of excess
professional services resources and contractor costs, and the continued
movement of non-core research and development functions to Pivotals
subsidiary in India.                                                                                                                                                                               
|  
|   |  | Fiscal 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | During the year ended June 30, 2003, Pivotal implemented restructuring
plans to align its cost structure with changing market conditions and
resulting decreased short-term revenue expectations. In connection with
these plans, Pivotal recorded a total restructuring charge of $9,048, of
which $8,596 was recognized in the second quarter in accordance with EITF
94-3 and $452 was recognized in the fourth quarter in accordance with SFAS
146. The Company also adjusted downward the reserve relating to the fiscal
2002 restructuring initiatives by $33. The net restructuring costs charged
to the Statement of Operations was $9,015 for the year ended June 30,
2003. During the year, the Company paid out $5,130 in connection with
fiscal 2003 restructuring activities.

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##### Table of Contents



PIVOTAL CORPORATION

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



|3. |  | RESTRUCTURING COSTS AND OTHER CHARGES (Continued)                                                                                                     
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The following summarizes the activity for restructuring undertaken in the
fourth quarter of fiscal 2003 and accounted for in accordance with SFAS
146:

|                                                         |  |               |     |                  |  |        |     |   |  |   |     |  
|-------------------------------------------------------- |  | ------------- | --- | ---------------- |  | ------ | --- | - |  | - | --- | -
|                                                         |  |               |     |                  |  | Excess |     |   |  |  
|                                                         |  | Severance and |     | Facilities/Asset |  |        |     |  
|                                                         |  | Benefits      |     | Impairments      |  | Total 
|                                                         |  |               |     |                  |  |       
|Restructuring charges, three months ending June 30, 2003 |  | $             | 391 |                  |  | $      | 61  |   |  | $ | 452 |  
|Cash payments                                            |  |               | (2  | )                |  |        |    |   |  |   | (2  | )
|Non-cash portion                                         |  |               |    |                  |  |        | (40 | ) |  |   | (40 | )
|                                                         |  |               |     |                  |  |        |     |   |  |   |     |  
|Reserve balances, June 30, 2003                          |  | $             | 389 |                  |  | $      | 21  |   |  | $ | 410 |  
|                                                         |  |               |     |                  |  |        |     |   |  |   |     |  
|Current Portion                                          |  | $             | 389 |                  |  | $      | 21  |   |  | $ | 410 |  
|Non-current Portion                                      |  |               |    |                  |  |        |    |   |  |   |    |  
|                                                         |  |               |     |                  |  |        |     |   |  |   |     |  
|                                                         |  | $             | 389 |                  |  | $      | 21  |   |  | $ | 410 |  
|                                                         |  |               |     |                  |  |        |     |   |  |   |     |  



| |  | Workforce reduction charges of $391 were related to the cost of severance
and benefits associated with approximately 10 employees notified of
termination during the three months ended June 30, 2003. The accrued
balance of $389 is expected to be paid within the next six months. Excess
facilities and asset impairment charges of $61 included of the net lease
cost related to the closure of one of our offices abroad and the write
down of computer and other equipment made redundant due to the
restructuring.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The following summarizes the activity for restructuring undertaken in the
second quarter of fiscal 2003 and accounted for in accordance with EITF
94-3 and other applicable pre-existing guidance:                                                                                                                                                                                                                                                                                                                        

|                                                             |  |               |        |                  |  |             |        |          |  |   |      |   |  |   |        |  
|------------------------------------------------------------ |  | ------------- | ------ | ---------------- |  | ----------- | ------ | -------- |  | - | ---- | - |  | - | ------ | -
|                                                             |  |               |        |                  |  | Excess      |        | Contract |  |   |      |  
|                                                             |  | Severance and |        | Facilities/Asset |  | Settlement  |        |          |  |  
|                                                             |  | Benefits      |        | Impairments      |  | Costs/Other |        | Total   
|                                                             |  |               |        |                  |  |             |        |         
|Restructuring charges, three months ending December 31, 2002 |  | $             | 3,302  |                  |  | $           | 4,842  |          |  | $ | 452  |   |  | $ | 8,596  |  
|Cash payments                                                |  |               | (3,190 | )                |  |             | (1,751 | )        |  |   | (187 | ) |  |   | (5,128 | )
|Non-cash portion                                             |  |               |       |                  |  |             | (487   | )        |  |   | (16  | ) |  |   | (503   | )
|                                                             |  |               |        |                  |  |             |        |          |  |   |      |   |  |   |        |  
|Reserve balances, June 30, 2003                              |  | $             | 112    |                  |  | $           | 2,604  |          |  | $ | 249  |   |  | $ | 2,965  |  
|                                                             |  |               |        |                  |  |             |        |          |  |   |      |   |  |   |        |  
|Current Portion                                              |  | $             | 112    |                  |  | $           | 1,801  |          |  | $ | 229  |   |  | $ | 2,142  |  
|Non-current Portion                                          |  |               |       |                  |  |             | 803    |          |  |   | 20   |   |  |   | 823    |  
|                                                             |  |               |        |                  |  |             |        |          |  |   |      |   |  |   |        |  
|                                                             |  | $             | 112    |                  |  | $           | 2,604  |          |  | $ | 249  |   |  | $ | 2,965  |  
|                                                             |  |               |        |                  |  |             |        |          |  |   |      |   |  |   |        |  



| |  | Workforce reduction charges of $3,302 were related to the cost of
severance and benefits associated with approximately 120 employees
notified of termination during the three months ended December 31, 2002,
across Pivotals sales, marketing, research and development, professional
services and administrative departments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Pivotal identified a number of leased office facilities that were no
longer required. As a result, Pivotal recorded total lease costs of
approximately $8,807. The costs primarily related to Pivotals future
contractual obligations under operating leases. The remaining lease
commitments will be paid over the respective lease terms through to 2008.
Offsetting the total lease charge was approximately $4,452 in net expected
sublease revenue. 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. In addition, leasehold improvements
located at the closed facilities and associated furniture and equipment
were determined to be impaired and were written down to estimated
realizable value, net of estimated disposal costs. The total write down of
capital assets amounted to $487.

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##### Table of Contents



PIVOTAL CORPORATION

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



|3. |  | RESTRUCTURING COSTS AND OTHER CHARGES (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Contract settlement and other costs of $452 were comprised of the
remaining commitments on operating lease contracts for computer and other
equipment made redundant due to the restructuring activities. If
additional contracts are cancelled in future periods, or if additional
unforeseen costs are incurred in respect of current contracts, this charge
may increase.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | Fiscal 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | During the year ended June 30, 2002, in response to the significant
downturn in the North American and global economies, and the related
impact on corporate capital spending, management approved an initial round
of restructuring plans to align Pivotals cost structure with managements
revised revenue expectations. In connection with these plans, Pivotal
recorded charges of $51,167 related to both restructuring activities and
intangible asset writedowns. These charges included restructuring costs of
$18,180 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.
During the years ended June 30, 2003 and 2002, the Company paid out $1,349
and $5,200, respectively, in connection with restructuring activities
initiated in fiscal 2002.
|  
|   |  | The following summarizes the activity for the restructuring undertaken
during fiscal 2002:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

|                                   |  |               |        |                  |  |             |        |                   |  |              |        |   |  |               |         |   |  |   |         |  
|---------------------------------- |  | ------------- | ------ | ---------------- |  | ----------- | ------ | ----------------- |  | ------------ | ------ | - |  | ------------- | ------- | - |  | - | ------- | -
|                                   |  |               |        |                  |  |             |        |                   |  |              |        |   |  | Impairment of |         |   |  |  
|                                   |  |               |        |                  |  | Excess      |        | Contract          |  | Goodwill And |        |   |  |              
|                                   |  | Severance and |        | Facilities/Asset |  | Settlement  |        | Other Purchased   |  |              |        |  
|                                   |  | Benefits      |        | Impairments      |  | Costs/Other |        | Intangible Assets |  | Total       
|                                   |  |               |        |                  |  |             |        |                   |  |             
|Restructuring charges, fiscal 2002 |  | $             | 3,751  |                  |  | $           | 10,720 |                   |  | $            | 3,709  |   |  | $             | 32,987  |   |  | $ | 51,167  |  
|Cash payments                      |  |               | (3,456 | )                |  |             | (1,326 | )                 |  |              | (418   | ) |  |               |        |   |  |   | (5,200  | )
|Non-cash portion                   |  |               |       |                  |  |             | (5,063 | )                 |  |              | (2,912 | ) |  |               | (32,987 | ) |  |   | (40,962 | )
|                                   |  |               |        |                  |  |             |        |                   |  |              |        |   |  |               |         |   |  |   |         |  
|Reserve balances, June 30, 2002    |  | $             | 295    |                  |  | $           | 4,331  |                   |  | $            | 379    |   |  |               |        |   |  | $ | 5,005   |  
|Cash payments                      |  |               | (228   | )                |  |             | (1,029 | )                 |  |              | (92    | ) |  |               |        |   |  |   | (1,349  | )
|Non-cash portion                   |  |               |       |                  |  |             | (338   | )                 |  |              | (1     | ) |  |               |        |   |  |   | (339    | )
|Adjustment to charge               |  |               |       |                  |  |             | (33    | )                 |  |              |       |   |  |               |        |   |  |   | (33     | )
|                                   |  |               |        |                  |  |             |        |                   |  |              |        |   |  |               |         |   |  |   |         |  
|Reserve balances, June 30, 2003    |  | $             | 67     |                  |  | $           | 2,931  |                   |  | $            | 286    |   |  |               |        |   |  | $ | 3,284   |  
|                                   |  |               |        |                  |  |             |        |                   |  |              |        |   |  |               |         |   |  |   |         |  
|Current Portion                    |  | $             |       |                  |  | $           | 930    |                   |  | $            | 72     |   |  |               |        |   |  | $ | 1,002   |  
|Non-current Portion                |  |               | 67     |                  |  |             | 2,001  |                   |  |              | 214    |   |  |               |        |   |  |   | 2,282   |  
|                                   |  |               |        |                  |  |             |        |                   |  |              |        |   |  |               |         |   |  |   |         |  
|                                   |  | $             | 67     |                  |  | $           | 2,931  |                   |  | $            | 286    |   |  |               |        |   |  | $ | 3,284   |  
|                                   |  |               |        |                  |  |             |        |                   |  |              |        |   |  |               |         |   |  |   |         |  



| |  | Pivotal recorded workforce reduction charges of $3,751, related to
severance and benefits to approximately 200 terminated employees. The
workforce reductions were primarily in the United States, Canada and the
United Kingdom and extended across all departments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | During 2002, Pivotal recorded charges of $10,720 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 period 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 2008. 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.

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##### Table of Contents



PIVOTAL CORPORATION

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



|3. |  | RESTRUCTURING COSTS AND OTHER CHARGES (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | During 2002, Pivotal recorded charges of $3,709 for contract settlement
costs including penalties expected to be incurred due to Pivotals
withdrawal from certain purchase and partner contracts. These charges also
include the write-off of certain unrecoverable expenses related to
non-refundable prepaid costs associated with marketing conferences that
Pivotal subsequently decided not to participate in and certain
non-refundable marketing costs related to advertising programs that
Pivotal cancelled pursuant to the restructuring plans.                                                                                                                                                                                                                                                          
|  
|   |  | As part of Pivotals review of financial results during the year ended
June 30, 2002, Pivotal 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 had negatively impacted Pivotals
revenues and forecasted revenue growth rate. As a result, an impairment
charge of $32,987 was recorded 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., Digital Conversations Inc. (formerly Simba
Technologies Inc.), Software Spectrum CRM, Inc. and Project One Business
Technologies Inc.
|  
|4. |  | ACCOUNTS RECEIVABLE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | The components of accounts receivable at June 30, 2003 and 2002 are as
follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

|                                      |  |          |        |      |  |   |        | 
|------------------------------------- |  | -------- | ------ | ---- |  | - | ------ | 
|                                      |  | June 30,
|                                      |  |         
|                                      |  | 2003     |        | 2002
|                                      |  |          |        |     
|Trade accounts receivable             |  | $        | 10,372 |      |  | $ | 12,804 | 
|Less: Allowance for doubtful accounts |  |          | 2,124  |      |  |   | 1,704  | 
|                                      |  |          |        |      |  |   |        | 
|                                      |  | $        | 8,248  |      |  | $ | 11,100 | 
|                                      |  |          |        |      |  |   |        | 



|5. |  | PROPERTY AND EQUIPMENT                                                            
|-- |  | ----------------------------------------------------------------------------------
|  
|   |  | The components of property and equipment at June 30, 2003 and 2002 are as
follows:

|                                |  |          |         |      |  |   |        |  
|------------------------------- |  | -------- | ------- | ---- |  | - | ------ | -
|                                |  | June 30,
|                                |  |         
|                                |  | 2003     |         | 2002
|                                |  |          |         |     
|Computer software and equipment |  | $        | 8,687   |      |  | $ | 8,113  |  
|Furniture and fixtures          |  |          | 2,843   |      |  |   | 2,786  |  
|Leasehold improvements          |  |          | 2,378   |      |  |   | 2,087  |  
|                                |  |          |         |      |  |   |        |  
|                                |  |          | 13,908  |      |  |   | 12,986 |  
|Less: Accumulated depreciation  |  |          | (10,825 | )    |  |   | (8,785 | )
|                                |  |          |         |      |  |   |        |  
|Net book value                  |  | $        | 3,083   |      |  | $ | 4,201  |  
|                                |  |          |         |      |  |   |        |  

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##### Table of Contents



PIVOTAL CORPORATION

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



|6. |  | GOODWILL AND ACQUIRED INTANGIBLES                                                                 
|-- |  | --------------------------------------------------------------------------------------------------
|  
|   |  | The changes in the carrying amount of goodwill during the year ended June
30, 2003 are as follows:

|                                                                              |  |   |       | 
|----------------------------------------------------------------------------- |  | - | ----- | 
|Balance as of June 30, 2002                                                   |  | $ | 7,308 | 
|Reclassification of assembled workforce from acquired intangibles to goodwill |  |   | 235   | 
|Earn-out payments to the shareholders of acquired companies                   |  |   | 148   | 
|Goodwill related to MarketFirst acquisition                                   |  |   | 2,250 | 
|                                                                              |  |   |       | 
|Balance as of June 30, 2003                                                   |  | $ | 9,941 | 
|                                                                              |  |   |       | 



| |  | The components of acquired intangibles at June 30, 2003 and 2002 are as
follows:
| |  | --------------------------------------------------------------------------------

|                               |  |          |       |      |  |   |       | 
|------------------------------ |  | -------- | ----- | ---- |  | - | ----- | 
|                               |  | June 30,
|                               |  |         
|                               |  | 2003     |       | 2002
|                               |  |          |       |     
|Acquired technology            |  | $        | 1,236 |      |  | $ | 1,620 | 
|Less: accumulated amortization |  |          | 581   |      |  |   | 1,296 | 
|                               |  |          |       |      |  |   |       | 
|Acquired intangibles, net      |  | $        | 655   |      |  | $ | 324   | 
|                               |  |          |       |      |  |   |       | 



| |  | As of June 30, 2003, future amortization expense related to the acquired
technology is as follows:
| |  | --------------------------------------------------------------------------------------------------

|                          |  |   |     | 
|------------------------- |  | - | --- | 
|Year ending June 30, 2004 |  | $ | 437 | 
|Year ending June 30, 2005 |  |   | 218 | 
|                          |  |   |     | 
|Total                     |  | $ | 655 | 
|                          |  |   |     | 



| |  | Summarized below are the effects on net loss and net loss per share, if
the Company had followed the amortization provisions of SFAS No. 142 for
the years ended June 30, 2003, 2002 and 2001.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                  |                                      |   |          |   |      |   |         |        |  |   |         |        | 
|------------------------------------------------- | ------------------------------------ | - | -------- | - | ---- | - | ------- | ------ |  | - | ------- | ------ | 
|                                                  |                                      |   | June 30,
|                                                  |                                      |   |         
|                                                  |                                      |   | 2003     |   | 2002 |   | 2001   
|                                                  |                                      |   |          |   |      |   |        
|Net loss, as reported                             |                                      | $ | (27,646  | ) |      | $ | (95,945 | )      |  | $ | (32,455 | )     
|Adjustments:                                      |                                      |   |          |   |      |   |         |        |  |   |         |       
|                                                  | Amortization of goodwill             |   |          |  |      |   |         | 15,669 |  |   |         | 22,440 | 
|                                                  | Amortization of acquired intangibles |   |          |  |      |   |         | 350    |  |   |         | 443    | 
|                                                  |                                      |   |          |   |      |   |         |        |  |   |         |       
|Pro forma net loss                                |                                      | $ | (27,646  | ) |      | $ | (79,926 | )      |  | $ | (9,572  | )     
|                                                  |                                      |   |          |   |      |   |         |        |  |   |         |       
|Basic and diluted net loss per share, as reported |                                      | $ | (1.10    | ) |      | $ | (3.99   | )      |  | $ | (1.40   | )     
|Basic and diluted net loss per share, pro forma   |                                      | $ | (1.10    | ) |      | $ | (3.32   | )      |  | $ | (0.41   | )     

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##### Table of Contents



PIVOTAL CORPORATION

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



|7. |  | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES                                  
|-- |  | --------------------------------------------------------------------------
|  
|   |  | The components of accounts payable and accrued liabilities are as follows:

|                          |  |          |        |      |  |   |        | 
|------------------------- |  | -------- | ------ | ---- |  | - | ------ | 
|                          |  | June 30,
|                          |  |         
|                          |  | 2003     |        | 2002
|                          |  |          |        |     
|Accounts payable          |  | $        | 6,898  |      |  | $ | 9,084  | 
|Accrued compensation      |  |          | 3,727  |      |  |   | 3,287  | 
|Accrued acquisition costs |  |          | 514    |      |  |   | 2,044  | 
|Other accrued liabilities |  |          | 3,790  |      |  |   | 2,372  | 
|                          |  |          |        |      |  |   |        | 
|                          |  | $        | 14,929 |      |  | $ | 16,787 | 
|                          |  |          |        |      |  |   |        | 



|8. |  | DEFERRED REVENUE                                                            
|-- |  | ----------------------------------------------------------------------------
|  
|   |  | The components of deferred revenue at June 30, 2003 and 2002 are as
follows:

|               |  |          |        |      |  |   |        | 
|-------------- |  | -------- | ------ | ---- |  | - | ------ | 
|               |  | June 30,
|               |  |         
|               |  | 2003     |        | 2002
|               |  |          |        |     
|License fees   |  | $        | 128    |      |  | $ | 279    | 
|Maintenance    |  |          | 11,239 |      |  |   | 11,037 | 
|Training       |  |          | 566    |      |  |   | 586    | 
|Implementation |  |          | 1,342  |      |  |   | 425    | 
|               |  |          |        |      |  |   |        | 
|               |  | $        | 13,275 |      |  | $ | 12,327 | 
|               |  |          |        |      |  |   |        | 



|9. |  | OBLIGATIONS UNDER CAPITAL LEASES AND LONG-TERM DEBT                
|-- |  | -------------------------------------------------------------------
|  
|   |  | Obligations under capital leases and long-term debt are as follows:

|                                                            |  |          |      |      |  |   |      |  
|----------------------------------------------------------- |  | -------- | ---- | ---- |  | - | ---- | -
|                                                            |  | June 30,
|                                                            |  |         
|                                                            |  | 2003     |      | 2002
|                                                            |  |          |      |     
|Obligation under capital lease with an interest rate of 5%  |  | $        | 250  |      |  | $ | 500  |  
|Obligation under capital lease with an interest rate of 18% |  |          | 103  |      |  |   | 173  |  
|Other obligations                                           |  |          | 165  |      |  |   | 70   |  
|                                                            |  |          |      |      |  |   |      |  
|                                                            |  |          | 518  |      |  |   | 743  |  
|Less: Current portion                                       |  |          | (481 | )    |  |   | (320 | )
|                                                            |  |          |      |      |  |   |      |  
|                                                            |  | $        | 37   |      |  | $ | 423  |  
|                                                            |  |          |      |      |  |   |      |  



| |  | As of June 30, 2003, future minimum lease payments for capital leases were
$364, including $11 of imputed interest. As of June 30, 2003, the net
book value of capital assets under capital lease was nil (June 30, 2002:
$87).
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents



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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Credit Facilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    |  | On December 30, 2002, Pivotal signed a credit agreement with a U.S. based
bank. This agreement provides Pivotal with a $7,000 credit facility and is
secured by a charge on all accounts receivable, inventory, chattel paper,
equipment and fixtures and a negative pledge relating to the Companys
general intangibles. Direct borrowings will bear interest at prime rate
plus 0.50%. The agreement requires the Company to maintain the following
two covenants: (a) a maximum net loss for the quarter ending September 30,
2003 of $3,000 and (b) a minimum qualified cash balance of $10,050. Upon
violation of the maximum net loss covenant, the borrowing base is
restricted to the lesser of $7,000 and 80% of eligible U.S. and Canada
accounts receivable. Upon a violation of the minimum cash covenant, all
outstanding letters of credit must be secured by cash collateral and all
the outstanding borrowings must be immediately repaid. As at June 30,
2003, Pivotal had issued standby letters of credit totaling $6,808 under
the facility, and was in compliance with all associated covenants.
|   
|    |  | On December 24, 2002, Pivotal amended its existing credit agreement with a
Canadian based bank. Under the amended agreement, the facility is limited
to the amount of outstanding letters of credit totaling $5,853 and is
secured by back-to-back letters of credit. As at June 30, 2003, the
Company was in compliance with all associated covenants. On August 2,
2003, all letters of credit outstanding under this facility expired and
the facility was effectively terminated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | Lease Obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    |  | Pivotal leases office facilities under operating leases which generally
require the Company 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, 2003 are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|           |  |   |        | 
|---------- |  | - | ------ | 
|2004       |  | $ | 8,572  | 
|2005       |  |   | 5,401  | 
|2006       |  |   | 3,837  | 
|2007       |  |   | 2,773  | 
|2008       |  |   | 2,694  | 
|Thereafter |  |   | 13,855 | 
|           |  |   |        | 
|           |  | $ | 37,132 | 
|           |  |   |        | 



| |  | Rent expense totaled approximately $4,887, $5,708, and $4,755 in the years
ended June 30, 2003, 2002 and 2001, 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: $569 in 2004, and $25 in 2005.

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##### Table of Contents



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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Guarantees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    |  | Pivotal adopted FIN 45, Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others,
during the quarter ended December 31, 2002. In the ordinary course of
business, the Company is not subject to potential obligations under
guarantees that fall within the scope of FIN 45 except for the standard
indemnification and warranty provisions that are contained within its
software license agreement, and give rise only to the disclosure
requirements prescribed by FIN 45.                                                                                                                                                                                    
|   
|    |  | Pivotal provides a warranty to its customers that its software will
perform substantially in accordance with documentation for a limited
period following receipt of the software. The Company also indemnifies
certain customers from third-party claims of intellectual property
infringement relating to the use of its products. Historically, Pivotal
has not incurred significant obligations under customer indemnification or
warranty provisions and does not expect to incur significant obligations
in the future. Accordingly, the Company does not maintain accruals for
potential customer indemnification or warranty-related obligations.                                                                          
|   
|    |  | Legal Proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |  | The Company is subject to legal proceedings and claims, either asserted or
unasserted, which arise in the ordinary course of business. While the
outcome of these proceedings and claims cannot be predicted with
certainty, management does not believe that the outcome of any pending
legal matters will have a material adverse effect on the Companys
business, financial condition, results of operations or cash flows.                                                                                                                                                                                                                                                                                                    
|   
|11. |  | STOCK-BASED COMPENSATION PLANS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    |  | 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.
|   
|    |  | 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 to 8,376 and 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.                                                                                                                                                                                                                                                                                                                                                    

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PIVOTAL CORPORATION

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



|11. |  | STOCK-BASED COMPENSATION PLANS (Continued)                                                                                
|--- |  | --------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Employee Stock Option Plan (continued)                                                                                    
|   
|    |  | A summary of stock option activity and information concerning currently
outstanding and exercisable options is as follows:

|                        |                    |  |           |        |           |  |                     |        |   |   |          |       | 
|----------------------- | ------------------ |  | --------- | ------ | --------- |  | ------------------- | ------ | - | - | -------- | ----- | 
|                        |                    |  |           |        |           |  | Options Outstanding
|                        |                    |  |           |        |           |  |                    
|                        |                    |  |           |        |           |  |                     |        |   |   | Weighted
|                        |                    |  | Options   |        | Number of |  | Average            
|                        |                    |  | Available |        | Common    |  | Exercise Price     
|                        |                    |  | for Grant |        | Shares    |  | Per Share          
|                        |                    |  |           |        |           |  |                    
|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  |  |           | 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  |  |           | 2,117  |           |  |                     | (2,030 | ) |   |          | 20.24 | 
|                        |                    |  |           |        |           |  |                     |        |   |   |          |      
|Balances, June 30, 2002 |                    |  | 988       |        |           |  | 5,786               |        |   | $ | 11.42    |      
|                        |                    |  |           |        |           |  |                     |        |   |   |          |      
|                        | Options authorized |  |           | 961    |           |  |                     |       |   |   |          |      | 
|                        | Options granted    |  |           | (3,047 | )         |  |                     | 3,047  |   |   |          | 0.76  | 
|                        | Options exercised  |  |           |       |           |  |                     | (12    | ) |   |          | 0.65  | 
|                        | Options cancelled  |  |           | 2,134  |           |  |                     | (2,134 | ) |   |          | 9.85  | 
|                        |                    |  |           |        |           |  |                     |        |   |   |          |      
|Balances, June 30, 2003 |                    |  | 1,036     |        |           |  | 6,687               |        |   | $ | 7.07     |      
|                        |                    |  |           |        |           |  |                     |        |   |   |          |      

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##### Table of Contents



PIVOTAL CORPORATION

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



|11. |  | STOCK-BASED COMPENSATION PLANS (Continued)                                                                 
|--- |  | -----------------------------------------------------------------------------------------------------------
|   
|    |  | Employee Stock Option Plan (continued)                                                                     
|   
|    |  | The following tables summarize information concerning outstanding and
exercisable options at June 30, 2003:

|                |  |             |                   |                 |  |           |  |             |  |           |  |          |   |          |  |  |  |                     |  |          |   |       |  | 
|--------------- |  | ----------- | ----------------- | --------------- |  | --------- |  | ----------- |  | --------- |  | -------- | - | -------- |  |  |  | ------------------- |  | -------- | - | ----- |  | 
|                |  |             |                   |                 |  |           |  |             |  |           |  |          |   |          |  |  |  | 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
|                |  |             |                   |                 |  |           |  |             |  |          
|                |  |             | $  0.08 - $  0.68 |                 |  | 396       |  |             |  | 6.0       |  |          | $ | 0.37     |  |  |  | 134                 |  |          | $ | 0.21  | 
|                |  |             | $  0.72           |                 |  | 1,722     |  |             |  | 8.4       |  |          |   | 0.72     |  |  |  | 410                 |  |          |   | 0.72  | 
|                |  |             | $  0.75 - $  3.91 |                 |  | 1,563     |  |             |  | 8.6       |  |          |   | 2.66     |  |  |  | 484                 |  |          |   | 3.17  | 
|                |  |             | $  4.02 - $  5.85 |                 |  | 1,084     |  |             |  | 7.9       |  |          |   | 5.07     |  |  |  | 393                 |  |          |   | 5.08  | 
|                |  |             | $  6.15 - $  9.44 |                 |  | 1,049     |  |             |  | 7.8       |  |          |   | 7.83     |  |  |  | 500                 |  |          |   | 7.94  | 
|                |  |             | $10.25 - $58.50   |                 |  | 873       |  |             |  | 6.7       |  |          |   | 32.08    |  |  |  | 574                 |  |          |   | 32.57 | 
|                |  |             |                   |                 |  |           |  |             |  |           |  |          |   |          |  |  |  |                     |  |         
|                |  |             | $  0.08 - $58.50  |                 |  | 6,687     |  |             |  | 7.9       |  |          | $ | 7.07     |  |  |  | 2,495               |  |          | $ | 10.63 | 
|                |  |             |                   |                 |  |           |  |             |  |           |  |          |   |          |  |  |  |                     |  |         



| |  | 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, 2003 as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

|                             |  |  |       | 
|---------------------------- |  |  | ----- | 
|Exercise of stock options    |  |  | 7,723 | 
|Employee Stock Purchase Plan |  |  | 541   | 
|                             |  |  |       | 
|                             |  |  | 8,264 | 
|                             |  |  |       | 

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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) are as follows:

|                     |          |   |                      |     |      |   |      |     |  |   |     |       |  
|-------------------- | -------- | - | -------------------- | --- | ---- | - | ---- | --- |  | - | --- | ----- | -
|                     |          |   | Years ended June 30,
|                     |          |   |                     
|                     |          |   | 2003                 |     | 2002 |   | 2001
|                     |          |   |                      |     |      |   |     
|Current              |          |   |                      |     |      |   |      |     |  |   |     |      
|                     | Canadian |   | $                    | 206 |      |   | $    | 44  |  |   | $   | (547  | )
|                     | Foreign  |   |                      | 212 |      |   |      | 342 |  |   |     | 1,050 |  
|                     |          |   |                      |     |      |   |      |     |  |   |     |      
|                     |          |   | 418                  |     |      |   | 386  |     |  |   | 503 |      
|Deferred             |          |   |                      |     |      |   |      |     |  |   |     |      
|                     | Canadian |   |                      |    |      |   |      |    |  |   |     |      |  
|                     |          |   |                      |     |      |   |      |     |  |   |     |      
|Income tax provision |          | $ | 418                  |     |      | $ | 386  |     |  | $ | 503 |      
|                     |          |   |                      |     |      |   |      |     |  |   |     |      



| |  | 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:
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                        |  |                      |         |      |  |      |         |   |  |   |         |  
|------------------------------------------------------- |  | -------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                        |  | Years Ended June 30,
|                                                        |  |                     
|                                                        |  | 2003                 |         | 2002 |  | 2001
|                                                        |  |                      |         |      |  |     
|Canadian basic statutory tax rate                       |  |                      | 39      | %    |  |      | 42      | % |  |   | 45      | %
|                                                        |  |                      |         |      |  |      |         |   |  |   |         |  
|Expected income tax recovery                            |  | $                    | (10,618 | )    |  | $    | (40,135 | ) |  | $ | (14,378 | )
|Foreign tax rate differences                            |  |                      |        |      |  |      | (92     | ) |  |   | (137    | )
|Goodwill amortization and other non-deductible expenses |  |                      | 176     |      |  |      | 20,316  |   |  |   | 10,087  |  
|Research and development tax credits                    |  |                      |        |      |  |      |        |   |  |   | (470    | )
|Benefit of losses not tax affected                      |  |                      | 9,400   |      |  |      | 14,833  |   |  |   | 3,407   |  
|Benefit of temporary differences not recognized         |  |                      | 1,460   |      |  |      | 5,464   |   |  |   | 1,994   |  
|                                                        |  |                      |         |      |  |      |         |   |  |   |         |  
|                                                        |  | $                    | 418     |      |  | $    | 386     |   |  | $ | 503     |  
|                                                        |  |                      |         |      |  |      |         |   |  |   |         |  

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##### Table of Contents



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, 2003 and 2002 are as follows:

|                                                                                         |                                         |   |         |        |      |   |         |        | 
|---------------------------------------------------------------------------------------- | --------------------------------------- | - | ------- | ------ | ---- | - | ------- | ------ | 
|                                                                                         |                                         |   | 2003    |        | 2002
|                                                                                         |                                         |   |         |        |     
|Deferred income tax assets                                                               |                                         |   |         |        |      |   |         |       
|                                                                                         | Net operating tax loss carry-forwards   |   | $       | 21,641 |      |   | $       | 14,870 | 
|                                                                                         | Research and development expenses       |   |         | 976    |      |   |         | 424    | 
|                                                                                         | Book and tax base differences on assets |   |         | 5,115  |      |   |         | 3,423  | 
|                                                                                         | Other                                   |   |         |       |      |   |         | 81     | 
|                                                                                         |                                         |   |         |        |      |   |         |       
|Total deferred income tax assets                                                         |                                         |   | 27,732  |        |      |   | 18,798  |       
|Valuation allowance for deferred income tax assets                                       |                                         |   | (27,732 | )      |      |   | (18,798 | )     
|                                                                                         |                                         |   |         |        |      |   |         |       
|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 |                                         | $ |        |        |      | $ |        |       
|                                                                                         |                                         |   |         |        |      |   |         |       



|    |  | 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, 2003 and 2002 was a
provision of $(8,934) and $(9,945), respectively.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | As of June 30, 2003, Pivotal has tax loss carry-forwards of approximately
$73,230 available to reduce future years income for tax purposes. These
carry-forward losses expire at various dates between 2004 and 2023.                                                                                                                              
|   
|13. |  | ACCUMULATED OTHER COMPREHENSIVE LOSS                                                                                                                                                                                                                                                                                                                
|   
|    |  | Accumulated other comprehensive loss consisted of the following:                                                                                                                                                                                                                                                                                    

|                                          |  |                      |   |      |  |      |     |   |  |   |      |  
|----------------------------------------- |  | -------------------- | - | ---- |  | ---- | --- | - |  | - | ---- | -
|                                          |  | Years ended June 30,
|                                          |  |                     
|                                          |  | 2003                 |   | 2002 |  | 2001
|                                          |  |                      |   |      |  |     
|Unrealized loss on marketable investments |  | $                    |  |      |  | $    | (90 | ) |  | $ | (203 | )
|                                          |  |                      |   |      |  |      |     |   |  |   |      |  

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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:

|                                         |  |          |        |      |  |      |        |   |  |   |        |  
|---------------------------------------- |  | -------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                         |  | June 30,
|                                         |  |         
|                                         |  | 2003     |        | 2002 |  | 2001
|                                         |  |          |        |      |  |     
|Accounts receivable                      |  | $        | 5,303  |      |  | $    | 14,261 |   |  | $ | (9,156 | )
|Prepaid expenses                         |  |          | (836   | )    |  |      | (1,410 | ) |  |   | (761   | )
|Accounts payable and accrued liabilities |  |          | (3,871 | )    |  |      | (8,537 | ) |  |   | 4,141  |  
|Accrued restructuring costs              |  |          | 67     |      |  |      | 5,065  |   |  |   |       |  
|Deferred revenue                         |  |          | (582   | )    |  |      | (1,483 | ) |  |   | 4,408  |  
|                                         |  |          |        |      |  |      |        |   |  |   |        |  
|                                         |  | $        | 81     |      |  | $    | 7,896  |   |  | $ | (1,368 | )
|                                         |  |          |        |      |  |      |        |   |  |   |        |  



|15. |  | RELATED PARTY TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | During the year ended June 30, 2001, Pivotal loaned Cdn $124 to its
General Counsel and Secretary. This loan was non-interest bearing and
unsecured. Pivotals General Counsel and Secretary resigned on August 15,
2003 and pursuant to an agreement dated May 29, 2002, repaid the
outstanding loan balance of Cdn $82.                                                                                                                                                                                                                                                       
|   
|    |  | 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. During the year ended June 30, 2003,
Pivotal paid Mr. Lochhead a total of $47 pursuant to the agreement. The
consulting agreement with Christopher Lochhead was terminated effective
September 30, 2002.                                                                                                                                                                                            
|   
|    |  | 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, 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.
|   
|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,
|                            |  |                     
|                            |  | 2003                 |        | 2002 |  | 2001
|                            |  |                      |        |      |  |     
|North America               |  | $                    | 34,862 |      |  | $    | 36,722 |  |  | $ | 64,170 | 
|Europe, Middle East, Africa |  |                      | 17,406 |      |  |      | 25,818 |  |  |   | 23,661 | 
|Asia Pacific, Latin America |  |                      | 3,809  |      |  |      | 7,076  |  |  |   | 8,323  | 
|                            |  |                      |        |      |  |      |        |  |  |   |        | 
|                            |  | $                    | 56,077 |      |  | $    | 69,616 |  |  | $ | 96,154 | 
|                            |  |                      |        |      |  |      |        |  |  |   |        | 

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PIVOTAL CORPORATION

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



|16. |  | SEGMENTED INFORMATION (Continued)                                                     
|--- |  | --------------------------------------------------------------------------------------
|   
|    |  | The following table presents a summary of property and equipment by
geographic region:

|                       |                             |   |          |       |      |   |       |       | 
|---------------------- | --------------------------- | - | -------- | ----- | ---- | - | ----- | ----- | 
|                       |                             |   | June 30,
|                       |                             |   |         
|                       |                             |   | 2003     |       | 2002
|                       |                             |   |          |       |     
|Property and equipment |                             |   |          |       |      |   |       |      
|                       | North America               |   | $        | 2,436 |      |   | $     | 2,877 | 
|                       | Europe, Middle East, Africa |   |          | 620   |      |   |       | 1,324 | 
|                       | Asia Pacific, Latin America |   |          | 27    |      |   |       |      | 
|                       |                             |   |          |       |      |   |       |      
|                       |                             | $ | 3,083    |       |      | $ | 4,201 |      
|                       |                             |   |          |       |      |   |       |      

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| |  | Schedule II  Valuation and Qualifying Accounts Years ended June 30, 2003,
2002 and 2001 (in thousands) Allowance for Doubtful Accounts
| |  | ---------------------------------------------------------------------------------------------------------------------------------------

|     |  |              |       |                  |  |             |       |             |  |  |       |  |  |   |       | 
|---- |  | ------------ | ----- | ---------------- |  | ----------- | ----- | ----------- |  |  | ----- |  |  | - | ----- | 
|     |  | Balance at   |       | Additions        |  | Write-offs, |       |             |  | 
|     |  | beginning of |       | charged to costs |  | net of      |       | Balance at 
|Year |  | year         |       | and expenses     |  | recoveries  |       | end of Year
|     |  |              |       |                  |  |             |       |            
|2003 |  | $            | 1,704 |                  |  |             | 800   |             |  |  | 380   |  |  | $ | 2,124 | 
|2002 |  | $            | 2,260 |                  |  |             | 5,510 |             |  |  | 6,066 |  |  | $ | 1,704 | 
|2001 |  | $            | 740   |                  |  |             | 3,312 |             |  |  | 1,792 |  |  | $ | 2,260 | 

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

None.




ITEM 9A.   CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including
our President and Chief Executive Officer and our Chief Financial Officer, we
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934 (the Exchange Act)). Based upon that evaluation, our
President and Chief Executive Officer and our Chief Financial Officer concluded
that, as of the end of the period covered by this report, our disclosure
controls and procedures were effective in timely alerting them to the material
information relating to us (or our consolidated subsidiaries) required to be
included in the reports we file or submit under the Exchange Act. During the
fiscal year covered by this report, there has been no change in our internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.

Our management, including our President and Chief Executive Officer and our
Chief Financial Officer, does not expect that our disclosure controls and
procedures or internal control over financial reporting will prevent all error
and all fraud. A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the
control system are met. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Because of the inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within our company have
been detected. These inherent limitations include the realities that judgments
in decision-making can be faulty, and that breakdowns can occur because of
simple error or mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more people, or by
management override of the control. The design of any system of controls also
is based in part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions; over time, control may
become inadequate because of changes in conditions, or degree of compliance
with the policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or
fraud may occur and not be detected.




PART III




ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

EXECUTIVE OFFICERS AND DIRECTORS

The directors of the Company are elected at each Annual General Meeting and
hold office until the close of the next Annual General Meeting or until their
successors are duly elected or appointed. The table below provides the names,
ages, and positions with Pivotal of our executive officers and directors as of
July 30, 2003:

|                        |  |     |    |          |  |                                                              
|----------------------- |  | --- | -- | -------- |  | -------------------------------------------------------------
|NAME                    |  | AGE |    | POSITION
|                        |  |     |    |         
|Kent Roger (Bo) Manning |  |     | 45 |          |  | President, Chief Executive Officer and a Director            
|Norman B. Francis       |  |     | 54 |          |  | Chairman of the Board of Directors                           
|Keith R. Wales          |  |     | 58 |          |  | Director                                                     
|Divesh Sisodraker       |  |     | 34 |          |  | Chief Financial Officer                                      
|Jesper Andersen         |  |     | 40 |          |  | Executive Vice President, Products                           
|Robert Douglas          |  |     | 40 |          |  | Executive Vice President, North American Sales and Operations
|John OHara             |  |     | 45 |          |  | Executive Vice President, EMEA                               
|Joseph Dworak           |  |     | 38 |          |  | Senior Vice President, North American Services               
|Jeremy A. Jaech         |  |     | 48 |          |  | Director                                                     
|Steven M. Gordon        |  |     | 44 |          |  | Director                                                     
|Christopher Lochhead    |  |     | 35 |          |  | Director                                                     
|Howard Gwin             |  |     | 45 |          |  | Director                                                     
|Eric Rosenfeld          |  |     | 46 |          |  | Director                                                     

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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 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.

JESPER ANDERSEN 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. Mr. Andersen
resigned from his executive position on August 29, 2003.

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. Mr. Douglas relinquished his
executive position on July 31, 2003.

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

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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.

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.

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.

STEVEN M. GORDON has served as a director since November 2000. Mr. Gordon
currently serves as Chief Operating Officer to Casey Family Programs. Prior to
Casey Family Programs, Mr. Gordon served as Chief Operating Officer for
Wavelink Corporation, a privately held wireless software provider. From 1997
until August 2000, Mr. Gordon served as Senior Vice President of Finance and
Administration and Chief Financial Officer for Visio Corporation. Prior to
joining Visio, Mr. Gordon was Vice President of Finance and Administration and
Chief Financial Officer at Data I/O Corporation. From 1984 to 1989, Mr. Gordon
held several positions, culminating as corporate treasurer with American Health
Group International, Inc., a health-care management organization. Before that,
he held financial-auditing positions at the international accounting and
consulting firm Ernst & Young. Mr. Gordon holds a bachelors degree in Business
Administration from Washington State University and was licensed by the State of
Washington as a Certified Public Accountant in 1983.

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 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.

ERIC ROSENFELD has served as a director since July 2003. Mr. Rosenfeld has
been President and Chief Executive Officer of Crescendo Partners, L.P an
investment firm based in New York since November 1998. Prior to forming
Crescendo Partners, he was Managing Director at CIBC Oppenheimer and its
predecessor company Oppenheimer & Co., Inc. Mr. Rosenfeld is a regular guest
lecturer at Columbia Business School and has served on numerous panels at
Queens University Business Law School Symposia, McGill Law School and the
Worlds Presidents Organization. Mr. Rosenfeld holds an AB degree in Economics
from Brown University and a Masters of Business Administration from Harvard
University.

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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

The company recently determined that it ceased to be a foreign private issuer
as of January 1, 2003. As a result of this loss of status, the officer,
directors and 10% shareholders of the company became subject to the provisions
of Section 16. Based on the companys analysis of trades reported to the
company, each of the companys Section 16 insiders is late in filing a Form 3,
Jeremy Jaech was late in filing a Form 4 with respect to the acquisition of
shares pursuant to the exercise of stock options and Eric Rosenfeld was late in
filing a Form 4 with respect to the receipt of an option grant. The company
does not believe that any transactions by company insiders resulted in any
Section 16 liability. The company anticipates taking action on or before
September 30, 2003 which will restore its status as a foreign private issuer.




ITEM 11.     EXECUTIVE COMPENSATION



| |  | The following table provides information for fiscal years 2003, 2002 and 2001
regarding the compensation we paid to, or that was earned by, our chief
executive officer and each of our four most highly compensated executive
officers. We refer to these individuals elsewhere in this Annual Report on Form
10-K as Named Executive Officers.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

SUMMARY COMPENSATION TABLE

|                                                                             |  |                     |                |        |  |                                      |  |                         |  |                               |  |        |  |            |  |            |                   |              |  |           |  |                        | 
|---------------------------------------------------------------------------- |  | ------------------- | -------------- | ------ |  | ------------------------------------ |  | ----------------------- |  | ----------------------------- |  | ------ |  | ---------- |  | ---------- | ----------------- | ------------ |  | --------- |  | ---------------------- | 
|                                                                             |  |                     |                |        |  |                                      |  |                         |  |                               |  |        |  | LONG TERM  |  |            |                  
|                                                                             |  |                     |                |        |  |                                      |  | COMPENSATION            |  |                               | 
|                                                                             |  |                     |                |        |  |                                      |  |                         |  |                               | 
|                                                                             |  | ANNUAL COMPENSATION |                |        |  | AWARDS                               |  | PAYOUTS                 |  |                               | 
|                                                                             |  |                     |                |        |  |                                      |  |                         |  |                               | 
|                                                                             |  |                     |                |        |  |                                      |  |                         |  | OTHER                         |  |        |  | RESTRICTED |  | SECURITIES |                   |              |  |           | 
|NAME AND PRINCIPAL                                                           |  |                     |                |        |  |                                      |  |                         |  | ANNUAL                        |  |        |  | STOCK      |  | UNDERLYING |                   | LTIP         |  | ALL OTHER | 
|POSITION                                                                     |  | YEAR                |                | SALARY |  | BONUS                                |  | COMPENSATION            |  |                               |  | AWARDS |  | OPTIONS    |  | PAYOUTS    |                   | COMPENSATION | 
|                                                                             |  |                     |                |        |  |                                      |  |                         |  |                               |  |        |  |            |  |            |                   |              | 
|Kent Roger (Bo) Manning
President and
Chief Executive
Officer                |  |                     | 2003
2002      |        |  | US$350,000
US$298,397(1)             |  | US$233,654
US$178,846   |  | 
                           |  |        |  | 
        |  |            | 100,000
1,000,000 |              |  | 
       |  | 
                    | 
|                                                                             |  |                     |                |        |  |                                      |  |                         |  |                               |  |        | 
|Jesper Andersen
Executive Vice President, Products                           |  |                     | 2003
2002      |        |  | US$275,000
US$68,750(2)              |  | US$82,500              |  | 
                           |  |        |  | 
        |  |            | 25,000
290,000    |              |  | 
       |  | 
                    | 
|                                                                             |  |                     |                |        |  |                                      |  |                         |  |                               |  |        | 
|Robert Douglas
Executive Vice
President, North
American Sales
and Operations |  |                     | 2003
2002      |        |  | US$250,000
US$173,397(3)             |  | US$81,489
US$87,500     |  | 
                           |  |        |  | 
        |  |            | 35,000
300,000    |              |  | 
       |  | 
                    | 
|                                                                             |  |                     |                |        |  |                                      |  |                         |  |                               |  |        | 
|John OHara
Executive Vice
President, EMEA                                   |  |                     | 2003
2002
2001 |        |  | US$220,332*
US$202,049*
US$4,219*(4) |  | US$121,406*
US$64,944* |  | US$18,886*(5)
US$17,319*(5)
 |  |        |  | 

      |  |            | 35,000
125,000   |              |  | 

     |  | US$22,033*
US$14,432* | 
|                                                                             |  |                     |                |        |  |                                      |  |                         |  |                               |  |        | 
|Joseph H. Dworak
Senior Vice
President, North
American
Services              |  |                     | 2003
2002      |        |  | US$275,000
US$190,737(6)             |  | US$82,766
US$78,385     |  | 
                           |  |        |  | 
        |  |            | 35,000
125,000    |              |  | 
       |  | 
                    | 



---

|*   |  | Compensation originally denominated in British pounds has been converted
using the average exchange rate during the year being 1.5738, 1.44321 and
1.44321 for the years ended June 30, 2003, 2002 and 2001, respectively.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | Mr. Manning was appointed President and Chief Executive Officer on August
27, 2001.                                                                                                                                       
|(2) |  | Mr. Andersens salary is from April 1 to June 30, 2002.                                                                                                                                                                   
|(3) |  | Mr. Douglas salary is from October 23, 2001 to June 30, 2002.                                                                                                                                                            
|(4) |  | Mr. OHara commenced employment on June 25, 2001.                                                                                                                                                                         
|(5) |  | Represents Mr. OHaras car allowance.                                                                                                                                                                                    
|(6) |  | Mr. Dworaks salary is from October 23, 2001 to June 30, 2002.                                                                                                                                                            

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##### Table of Contents



OPTION GRANTS IN LAST FISCAL YEAR

The following table provides information regarding stock option grants to our
Named Executive Officers during the fiscal year ended June 30, 2003. The
potential realizable value of the options is calculated based on the assumption
that 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:



| |  |  | multiplying the number of common shares subject to a given option by
the exercise price;                                                                              
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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
|
| |  |  | subtracting from that result the aggregate option exercise price.                                                                                                     

|                        |  |                   |         |                      |  |            |      |            |  |    |      |                              |  |                      |  |                         |        |  |  |   |         |  |  | 
|----------------------- |  | ----------------- | ------- | -------------------- |  | ---------- | ---- | ---------- |  | -- | ---- | ---------------------------- |  | -------------------- |  | ----------------------- | ------ |  |  | - | ------- |  |  | 
|                        |  | INDIVIDUAL GRANTS |         |                      |  |            |      |            |  |   
|                        |  |                   |         | POTENTIAL REALIZABLE
|                        |  |                   |         |                      |  | % OF TOTAL |      |            |  |    |      |                              |  |                      |  | VALUE AT ASSUMED ANNUAL
|                        |  | NUMBER OF         |         | OPTIONS              |  |            |      |            |  |    |      |                              |  | RATES OF SHARE PRICE
|                        |  | SECURITIES        |         | GRANTED TO           |  | EXERCISE   |      |            |  |    |      | APPRECIATION FOR OPTION TERM
|                        |  | UNDERLYING        |         | EMPLOYEES IN         |  | PRICE PER  |      | EXPIRATION |  |   
|NAME                    |  | OPTIONS           |         | FISCAL YEAR          |  | SHARE      |      | DATE       |  | 5% |      | 10%                         
|                        |  |                   |         |                      |  |            |      |            |  |    |      |                             
|Kent Roger (Bo) Manning |  |                   | 100,000 |                      |  |            | 3.28 | %          |  | $  | 0.79 |                              |  | Nov. 25, 2012        |  | $                       | 49,683 |  |  | $ | 125,906 | 
|Jesper Andersen         |  |                   | 25,000  |                      |  |            | 0.82 | %          |  | $  | 0.79 |                              |  | Nov. 25, 2012        |  | $                       | 12,421 |  |  | $ | 31,476  | 
|Robert Douglas          |  |                   | 35,000  |                      |  |            | 1.15 | %          |  | $  | 0.79 |                              |  | Nov. 25, 2012        |  | $                       | 17,389 |  |  | $ | 44,067  | 
|John OHara             |  |                   | 35,000  |                      |  |            | 1.15 | %          |  | $  | 0.79 |                              |  | Nov. 25, 2012        |  | $                       | 17,389 |  |  | $ | 44,067  | 
|Joseph Dworak           |  |                   | 35,000  |                      |  |            | 1.15 | %          |  | $  | 0.79 |                              |  | Nov. 25, 2012        |  | $                       | 17,389 |  |  | $ | 44,067  | 

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, 2003. The value of unexercised in-the-money options is based on
the closing price of our common shares on the Nasdaq National Market on June 30,
2003 of $1.08, minus the exercise price per share.

AGGREGATED OPTIONS EXERCISED DURING 2003 FISCAL YEAR
AND FINANCIAL YEAR-END OPTION VALUES

|                        |  |                 |   |          |  |             |   |               |  |                            |        |                         |  |  |        |  |  |   |       |  |  |   |        | 
|----------------------- |  | --------------- | - | -------- |  | ----------- | - | ------------- |  | -------------------------- | ------ | ----------------------- |  |  | ------ |  |  | - | ----- |  |  | - | ------ | 
|                        |  |                 |   |          |  |             |   |               |  | 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          
|                        |  |                 |   |          |  |             |   |               |  |                            |        |                        
|Kent Roger (Bo) Manning |  |                 | 0 |          |  |             | 0 |               |  |                            | 25,000 |                         |  |  | 75,000 |  |  | $ | 7,250 |  |  | $ | 21,750 | 
|Jesper Andersen         |  |                 | 0 |          |  |             | 0 |               |  |                            | 6,250  |                         |  |  | 18,750 |  |  | $ | 1,812 |  |  | $ | 5,438  | 
|Robert Douglas          |  |                 | 0 |          |  |             | 0 |               |  |                            | 8,750  |                         |  |  | 26,250 |  |  | $ | 2,537 |  |  | $ | 7,613  | 
|John OHara             |  |                 | 0 |          |  |             | 0 |               |  |                            | 8,750  |                         |  |  | 26,250 |  |  | $ | 2,537 |  |  | $ | 7,613  | 
|Joseph Dworak           |  |                 | 0 |          |  |             | 0 |               |  |                            | 8,750  |                         |  |  | 26,250 |  |  | $ | 2,537 |  |  | $ | 7,613  | 

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 and in certain cases, offer
stipends for either in person, or telephonic attendance at committee
meetings. We do not provide additional
compensation for committee participation or special assignments of the board of
directors. Each of our non-employee directors, Messrs. Francis, Wales, Jaech,
Gordon, Lochhead and Gwin received stock options for their participation on our
board of directors for the year ended June 30, 2003. Messrs. Francis, Wales,
Jaech, Gordon, Lochhead and Gwin each received options to purchase 20,000
common shares at an exercise price of $0.78 per share. The exercise price per
share was equal to the fair market value of common stock on the date of grant.
The shares subject to each grant vest and become exercisable 12 months from the
date of grant. Mr. Rosenfeld was appointed director on July 1, 2003 and
received options to purchase 40,000 common shares at an exercise price of
$1.00. The options vest as to 25% of common shares after one year and the
balance vests as to 12.5% of common shares every six months thereafter.

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##### Table of Contents



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.

We entered into an employment contract with Jesper Andersen on March 14, 2002.
Mr. Andersen resigned on August 29, 2003. Mr. Andersens base salary was
US$275,000 with a potential incentive compensation of US$82,500. Mr. Andersens
salary was reviewed annually by the Compensation Committee. Mr. Andersen was
also granted 290,000 options to purchase common shares in Pivotal and was
awarded additional grants at the discretion of our board of directors.

We entered into an employment contract with Robert Douglas on October 21, 2001.
Mr. Douglas resigned on July 31, 2003. Mr. Douglas base salary was US$250,000
with a potential incentive compensation of US$175,000. Mr. Douglas salary was
reviewed annually by the Compensation Committee. Pursuant to his employment
contract, Mr. Douglas was granted 300,000 options to purchase common shares in
Pivotal. Subsequent to entering into this agreement, Mr. Douglas was awarded
additional grants at the discretion of our board of directors.

We entered into an employment contract with John OHara on June 5, 2001. Mr.
OHaras current base salary is US$220,332 with a potential incentive
compensation of US$173,118. 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.

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.

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 and Howard Gwin. Neither Mr. Jaech nor Mr. Gwin is or was an
employee or officer of Pivotal or its subsidiaries.




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 29, 2003 for:



| |  |  | our chief executive officer;                                                                                                                                                                                                                                              
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our four most highly compensated executive officers;                                                                                                                                                                                                                      
|
| |  |  | each of our directors;                                                                                                                                                                                                                                                    
|
| |  |  | 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
|
| |  |  | all of our directors and executive officers as a group.                                                                                                                                                                                                                   

The principal address of each of the individuals identified below is 858 Beatty
Street, Suite 700, Vancouver, BC, Canada V6B 1C1, except where another address
is listed. Unless otherwise indicated, each of the individuals identified below
exercises sole voting and dispositive power over the common shares they
beneficially own.

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##### Table of Contents



|                                                                |                                 |                    |                  |              |                   |  |       |   | 
|--------------------------------------------------------------- | ------------------------------- | ------------------ | ---------------- | ------------ | ----------------- |  | ----- | - | 
|                                                                |                                 |                    | NUMBER OF SHARES |              | PERCENT OF COMMON
|NAME AND ADDRESS OF BENEFICIAL OWNER                            |                                 | BENEFICIALLY OWNED |                  | SHARES OWNED
|                                                                |                                 |                    |                  |             
|Crescendo Partners II L.P. Series V, Crescendo                  |                                 |                    |                  |              |                   |  |       |  
|Investments II, LLC and Eric Rosenfeld(1)                       |                                 |                    | 2,773,550        |              |                   |  | 10.57 | %
|                                                                | 350 Park Avenue, 4th Floor      |                    |                  |              |                   |  |       |   | 
|                                                                | New York, New York 10022        |                    |                  |              |                   |  |       |   | 
|RBC Global Investment Management Inc.(2)                        |                                 |                    | 2,286,600        |              |                   |  | 8.72  | %
|                                                                | 77 King Street West, Suite 3800 |                    |                  |              |                   |  |       |   | 
|                                                                | Toronto, ON M5K 1H1             |                    |                  |              |                   |  |       |   | 
|Phillips, Hager & North Investment Management Ltd.(3)           |                                 |                    | 2,085,200        |              |                   |  | 7.95  | %
|                                                                | 21st Floor, 200 Burrard Street  |                    |                  |              |                   |  |       |   | 
|                                                                | Vancouver, BC V6C 3N5           |                    |                  |              |                   |  |       |   | 
|Norman B. Francis(4)                                            |                                 |                    | 2,044,225        |              |                   |  | 7.79  | %
|Keith R. Wales(5)                                               |                                 |                    | 981,424          |              |                   |  | 3.74  | %
|Jeremy A. Jaech(6)                                              |                                 |                    | 100,000          |              |                   |  | *     |  
|Steven M. Gordon(7)                                             |                                 |                    | 40,000           |              |                   |  | *     |  
|Christopher Lochhead(7)                                         |                                 |                    | 15,000           |              |                   |  | *     |  
|Howard Gwin(7)                                                  |                                 |                    | 10,000           |              |                   |  | *     |  
|Kent Roger (Bo) Manning(7)                                      |                                 |                    | 552,380          |              |                   |  | 2.11  | %
|Jesper Andersen(7)                                              |                                 |                    | 114,326          |              |                   |  | *     |  
|Robert Douglas(7)                                               |                                 |                    | 133,333          |              |                   |  | *     |  
|John OHara(7)                                                  |                                 |                    | 71,250           |              |                   |  | *     |  
|Joseph H. Dworak(7)                                             |                                 |                    | 50,416           |              |                   |  | *     |  
|All directors and executive officers as a group
(13 persons)(8) |                                 |                    | 6,995,258        |              |                   |  | 26.67 | %



---

|*   |  | indicates less than one (1) percent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | Consists of shares held of record
by Crescendo Partners II L.P. Series V, of which
Crescendo Investments II LLC is the sole general partner. Mr. Rosenfeld is the President and Chief Executive
Officer of Crescendo Partners II and the Senior Managing Member of
Crescendo Investments II. This information is derived from a Schedule 13D
filed with the Securities and Exchange Commission by Crescendo Partners
II, L.P. Series V, Crescendo Investments II, LLC and Mr. Rosenfeld on May
15, 2003.                                                                                                                                                                                             
|   
|(2) |  | Consists of (a) 770,900 shares over which RBC Global Investment
Management Inc. exercises sole voting and dispositive power; and (b)
1,515,700 shares held of record by The Royal Canadian Growth Fund, an
account for which The Royal Trust Company serves as trustee and RBC Funds
Inc. serves as manager; RBC Funds Inc. has delegated its management duties
to RBC Global Investment Management Inc., and The Royal Trust Company, RBC
Funds Inc. and RBC Global Investment Management Inc. share voting and
dispositive power over such 1,515,700 shares. This information is derived
from Schedule 13Gs filed with the Securities and Exchange Commission by
such persons on February 14, 2003.
|   
|(3) |  | Phillips, Hager & North Investment Management Ltd. exercises sole voting
and dispositive power over all 2,085,200 shares. This information is
derived from a Schedule 13G filed with the Securities and Exchange
Commission by Phillips, Hager & North Investment Management Ltd. on
January 27, 2003.                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(4) |  | Consists of (a) 868,657 held of record by Mr. Francis; (b) 400,800 shares
held of record by The Francis Family Trust, a family trust for the benefit
of Mr. Francis and his three children; (c) 697,143 shares held of record
by Boardwalk Ventures Inc., a holding company owned 50% by Mr. Francis and
50% by his spouse; and (d) 77,625 shares subject to options exercisable by
Mr. Francis within 60 days of August 29, 2003. This information is
derived from a Schedule 13G filed with the Securities and Exchange
Commission by Mr. Francis on February 14, 2003.                                                                                                                            
|   
|(5) |  | Consists of (a) 547,228 held of record by Mr. Wales; (b) 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; (c) 55,624 shares
subject to options exercisable by Mr. Wales within 60 days of August 29,
2003. Mr. Wales disclaims beneficial ownership of any shares held by his
former spouse, Patricia Wales.                                                                                                                                                                                                                                                                                          
|   
|(6) |  | Includes 40,000 shares subject to options exercisable within 60 days of
August 29, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(7) |  | Represents shares subject to options exercisable by individual within 60
days of August 29, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(8) |  | Includes 1,258,204 shares subject to options exercisable within 60 days
of August 29, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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##### Table of Contents



EQUITY COMPENSATION PLAN INFORMATION

|                                                           |  |                   |  |                   |  |                         
|---------------------------------------------------------- |  | ----------------- |  | ----------------- |  | ------------------------
|                                                           |  |                   |  |                   |  | Number of               
|                                                           |  | Number of         |  |                   |  | Securities              
|                                                           |  | Securities to be  |  |                   |  | remaining available     
|                                                           |  | Issued upon       |  | Weighted-average  |  | for future issuance     
|                                                           |  | Exercise of       |  | Exercise Price of |  | under Equity            
|                                                           |  | Outstanding       |  | Outstanding       |  | Compensation Plans      
|                                                           |  | Options, Warrants |  | Options, Warrants |  | (excluding securities   
|                                                           |  | and Rights        |  | and Rights        |  | reflected in column (a))
|Plan Category                                              |  | (a)               |  | (b)               |  | (c)                     
|                                                           |  |                   |  |                   |  |                         
|Equity compensation plans approved by security holders*    |  | 6,687,309         |  | $7.07             |  | 1,036,681               
|Equity compensation plans not approved by security holders |  |                  |  |                  |  |                        
|                                                           |  |                   |  |                   |  |                         
|Total                                                      |  | 6,687,309         |  | $7.07             |  | 1,036,681               
|                                                           |  |                   |  |                   |  |                         



---

|*   |  | All equity compensation plans are approved by shareholders and include
the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | 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. As of June 30, 2003, there were 991 outstanding
options under the plan assumed in the Exactium acquisition, with a
weighted-average exercise price of $0.57. As of June 30, 2003, there
were 92,875 outstanding options under the plan assumed in the Simba
acquisition, with a weighted-average price of $22.21.
|   
|(2) |  | 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 541,130 shares remaining
available for future issuance under the Employee Stock Purchase Plan.                                               




ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During the year ended June 30, 2001, Pivotal loaned Cdn $124,000 to its General
Counsel and Secretary. This loan was non-interest bearing and unsecured.
Pivotals General Counsel and Secretary resigned on August 15, 2003 and
pursuant to an agreement dated May 29, 2002, repaid the outstanding loan
balance of Cdn $82,000.

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. During the year ended June 30, 2003, Pivotal
paid Mr. Lochhead a total of $47,000 pursuant to the agreement. The consulting
agreement with Christopher Lochhead was terminated effective September 30,
2002.

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.

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##### Table of Contents






PART IV




ITEM 15.   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 Auditors Report                    |  |      | 56 | 
|Consolidated Balance Sheets                     |  |      | 57 | 
|Consolidated Statements of Operations           |  |      | 58 | 
|Consolidated Statements of Shareholders Equity |  |      | 59 | 
|Consolidated Statements of Cash Flows           |  |      | 60 | 
|Notes to Consolidated Financial Statements      |  |      | 61 | 



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

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



|(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
|           
|2.4(12)     |  | Agreement and Plan of Merger among Pivotal, Pivotal Corporation, a
Washington corporation, Pivotal Merger Subsidiary, Inc., MarketFirst
Software, Inc. and other shareholders of MarketFirst Software, Inc. dated
October 2, 2002                                                                                                                                                                                                   
|           
|3.2(4)      |  | Memorandum and Articles                                                                                                                                                                                                                                                                                                                                                                                                             
|           
|4.1(4)      |  | Specimen of common share certificate                                                                                                                                                                                                                                                                                                                                                                                                
|           
|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)                                                                                                                                                                                                                                                                                                                                                         

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|            |  |                                                                                                                                                                                                     
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT NO. |  | DESCRIPTION                                                                                                                                                                                         
|            |  |                                                                                                                                                                                                     
|4.5(8)      |  | 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                                                                                                                                                                
|           
|#10.18(7)   |  | Simba Technologies Incentive Stock Option Plan, as amended                                                                                                                                          
|           
|#10.19(8)   |  | Amended and Restated Incentive Stock Option Plan                                                                                                                                                    
|           
|10.20(8)    |  | Restated Offer to Lease dated July 28, 2000 between PCI Properties Corporation and Pivotal with respect to premises located in Vancouver, B.C.                                                      

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|            |  |                                                                                                                                                                             
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT NO. |  | DESCRIPTION                                                                                                                                                                 
|            |  |                                                                                                                                                                             
|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(11)  |  | Employment Agreement between John OHara and Pivotal dated June 5, 2001                                                                                                     
|           
|#10.32(11)  |  | Employment Agreement between Robert Douglas and Pivotal dated October 21, 2001                                                                                              
|           
|#10.33(11)  |  | Employment Agreement between Joe Dworak and Pivotal dated October 19, 2001                                                                                                  
|           
|#10.34(11)  |  | Employment Agreement between James Warden and Pivotal dated May 18, 1999                                                                                                    
|           
|10.35(11)   |  | 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(11)   |  | Modification of Lease dated January 8, 2002 between B.C. Rail Ltd.
and Pivotal                                                                                              
|           
|10.37(11)   |  | 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(11)   |  | Lease dated August 18, 2000 between Dunsmuir & Hornby Ltd. and
Pivotal with respect to premises located in Vancouver, B.C.                                                  
|           
|10.39(11)   |  | Lease Extension dated October 30, 2001 between Dunsmuir & Hornby Ltd.
and Pivotal with respect to premises located in Vancouver, B.C.                                       
|           
|10.40(11)   |  | Lease made May 7, 2000 between 1102758 Ontario Limited and Pivotal
with respect to premises located in Toronto, ON                                                          
|           
|#10.41(11)  |  | Loan Agreement made as of January 29, 2001 between Pivotal and Andre Beaulieu                                                                                               
|           
|#10.42(11)  |  | Amendment of Loan Agreement dated May 29, 2002 between Pivotal and Andre Beaulieu                                                                                           
|           
|10.43(11)   |  | Sub-lease dated August 29, 2000 between Pivotal and Primus
Telecommunications (Canada) Inc. with respect to premises located in
Vancouver, B.C.                             

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|            |  |                                                                                                                                                   
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT NO. |  | DESCRIPTION                                                                                                                                       
|            |  |                                                                                                                                                   
|10.44(11)   |  | Amendment of Lease Extension dated April 29, 2002 between Pivotal and
Dunsmuir and Hornby Ltd. with respect to premises located in Vancouver,
B.C.
|           
|10.45(13)   |  | Lease dated August 18, 2000 between Pivotal and Dunsmuir and Hornby
Ltd. with respect to premises located in Vancouver, B.C.                      
|           
|10.46(14)   |  | Credit Agreement with CIBC dated December 24, 2002                                                                                                
|           
|10.45(14)   |  | Loan and Security Agreement with Silicon Valley Bank dated December 2002                                                                          
|           
|10.47       |  | Amendment of Loan and Security Agreement with Silicon Valley Bank dated August 2003                                                               
|           
|10.48       |  | Employment Agreement between Jesper Andersen and Pivotal dated March
14, 2002.                                                                    
|           
|21.1        |  | Subsidiaries of Pivotal                                                                                                                           
|           
|23.1        |  | Consent of Deloitte & Touche LLP                                                                                                                  
|           
|24.1        |  | Powers of Attorney (included on signature page)                                                                                                   
|           
|31.1        |  | Rule 13a-14(a) Certifications                                                                                                                     
|           
|32.1        |  | Rule 13a-14(b) Certifications                                                                                                                     



---

|#    |  | 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.   
|(11) |  | Incorporated by reference to Pivotals Annual Report on Form 10-K for the
year ended June 30, 2002.          
|(12) |  | Incorporated by reference to Pivotals Form 8-K filed on October 29,
2002.                                   
|(13) |  | Incorporated by reference to Pivotals Form 10-Q filed on November 14,
2002.                                 
|(14) |  | Incorporated by reference to Pivotals Form 10-Q filed o February 14,
2003.                                  

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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 September 29, 2003.

| |  |                                  |  |                                                                                             
| |  | -------------------------------- |  | --------------------------------------------------------------------------------------------
| |  | PIVOTAL CORPORATION
(Registrant)
|
|
| |  | By:                              |  | /s/  Kent Roger (Bo) Manning
Kent Roger (Bo) Manning
(President and Chief Executive Officer)

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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
Kent Roger (Bo) Manning |  | President, Chief Executive Officer and Director
(principal executive officer) |  | September 29, 2003
|                                                   
|                                                   
|/s/ Divesh Sisodraker
Divesh Sisodraker             |  | Chief Financial Officer
(principal financial and accounting officer)          |  | September 29, 2003
|                                                   
|                                                   
|/s/ Keith R. Wales

Keith R. Wales                  |  | Director                                                                      |  | September 29, 2003
|                                                   
|                                                   
|/s/ Norman B. Francis

Norman B. Francis            |  | Director                                                                      |  | September 29, 2003
|                                                   
|                                                   
|/s/ Jeremy A. Jaech

Jeremy A. Jaech                |  | Director                                                                      |  | September 29, 2003
|                                                   
|                                                   
|/s/ Christopher Lochhead
Christopher Lochhead       |  | Director                                                                      |  | September 29, 2003
|                                                   
|                                                   
|/s/ Steven M. Gordon

Steven M. Gordon              |  | Director                                                                      |  | September 29, 2003
|                                                   
|                                                   
|/s/ Howard Gwin
Howard Gwin                         |  | Director                                                                      |  | September 29, 2003
|                                                   
|                                                   
|/s/ Eric Rosenfeld
Eric Rosenfeld                   |  | Director                                                                      |  | September 29, 2003

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