================================================================================

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

                                ----------------


                                    Form 10-Q


(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
      EXCHANGE ACT OF 1934
                For the quarterly period ended September 30, 1996

                                       or

(   ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
      EXCHANGE ACT OF 1934

                         Commission File Number: 0-27806


                                ----------------

                              THE INDUS GROUP, INC.
          (Exact name of Registrant issuer as specified in its charter)


     California                                                94-3108025
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                              Identification No.)


60 Spear Street, San Francisco, California                        94105
(Address of principal executive offices)                        (Zip code)


                                 (415) 904-5000
              (Registrant's telephone number, including area code)

                                ----------------

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 such  filing
requirements for the past 90 days. Yes X  No
                                       --    --

As of October 31, 1996,  Registrant had outstanding  18,423,056 shares of Common
Stock, $.001 par value.

================================================================================
<PAGE>
<TABLE>

                                                   TABLE OF CONTENTS
<CAPTION>

                                             Part I: Financial Information                                    Page
                                                                                                              ----
<S>          <C>                                                                                               <C>
Item   1.    Financial Statements (unaudited)
             Condensed Consolidated Statements of Operations - three and nine months ended
                  September 30, 1996 and 1995............................................................       1
             Condensed Consolidated Balance Sheets - September 30, 1996 and December 31, 1995............       2
             Condensed Consolidated Statement of Shareholders' Equity - year ended
                 December 31, 1995 and nine months ended September 30, 1996..............................       3
             Condensed Consolidated Statements of Cash Flows - nine months ended
                 September 30, 1996 and 1995.............................................................       4
             Notes to Condensed Consolidated Financial Statements........................................       5
Item   2.    Management's Discussion and Analysis of Financial Condition and Results of Operations.......       7

                                              Part II: Other Information

Item   1.    Legal Proceedings...........................................................................      12
Item   2.    Changes in Securities.......................................................................      12
Item   3.    Defaults Upon Senior Securities.............................................................      12
Item   4.    Submission of Matters to a Vote of Security Holders.........................................      12
Item   5.    Other Information...........................................................................      12
Item   6.    Exhibits and Reports on Form 8-K............................................................      12


             Signatures..................................................................................      13

</TABLE>

<PAGE>

PART I: FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS

<TABLE>

                              THE INDUS GROUP, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                    (In thousands, except per share amounts)

                                   (Unaudited)

<CAPTION>
                                                                           Three Months Ended   Nine Months Ended
                                                                              September 30,        September 30,
                                                                           ------------------   ------------------
                                                                             1996      1995       1996       1995
                                                                           -------   -------    -------    -------
<S>                                                                         <C>       <C>        <C>        <C>
Revenues:
     Software licensing fees ...........................................   $ 4,277   $ 2,585    $12,028    $ 8,304
     Services and maintenance ..........................................    15,728    10,717     42,435     30,291
                                                                           -------   -------    -------    -------
          Total ........................................................    20,005    13,302     54,463     38,595
Cost of revenues .......................................................     8,562     5,883     22,599     16,042
                                                                          -------   -------    -------    -------
Gross margin ...........................................................    11,443     7,419     31,864     22,553
Operating expenses:
     Research and  development .........................................     2,905     2,311      9,614      5,984
     Sales and marketing ...............................................     2,352     1,414      6,283      3,996
     General and administrative ........................................     1,979     1,116      5,668      3,070
     Compensation charge - stock options ...............................      --      18,900       --       18,900
                                                                           -------   -------    -------    -------
          Total operating expenses .....................................     7,236    23,741     21,565     31,950
                                                                           -------   -------    -------    -------

Income (loss) from operations ..........................................     4,207   (16,322)    10,299     (9,397)
Other income,  net .....................................................       384        31        813        118
                                                                           -------   -------    -------    -------
Income (loss) before income  taxes .....................................     4,591   (16,291)    11,112     (9,279)

Provision for income taxes (state and foreign only in 1995) ............     1,927        31      4,594        243
Cumulative effect of deferred income taxes provided upon January 1, 1996
   conversion to C-Corporation status ..................................      --        --        6,700       --
                                                                           -------   -------    -------    -------
Net income (loss) ......................................................   $ 2,664  $(16,322)   $  (182)   $(9,522)
                                                                           =======   =======    =======    =======
Pro forma statement of operations:
     Income (loss) before income taxes, as above .......................   $ 4,591  $(16,291)   $11,112    $(9,279)
     Compensation charge - stock options ...............................      --        --         --       (1,000)
     Add back portion of compensation charge - stock options ...........      --      18,900       --       18,900
                                                                           -------   -------    -------    -------
     Income before income taxes, as adjusted ...........................     4,591     2,609     11,112      8,621
     Provision for income taxes (federal, state and foreign) ...........     1,927     1,097      4,594      3,626
                                                                           -------   -------    -------    -------
     Pro forma net income ..............................................   $ 2,664   $ 1,512    $ 6,518    $ 4,995
                                                                           =======   =======    =======    =======
Pro forma net income per share .........................................   $  0.14   $  0.09    $  0.35    $  0.29
                                                                           =======   =======    =======    =======
Shares used in computing pro forma net income per  share ...............    19,401    17,490     18,817     17,490
                                                                           =======   =======    =======    =======

<FN>

                                                See accompanying notes.
</FN>
</TABLE>

                                        1
<PAGE>
<TABLE>

                              THE INDUS GROUP, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                      (In thousands, except share amounts)

                                   (Unaudited)
<CAPTION>

                                                                                 September 30,    December 31,
                                                                                      1996           1995
                                                                                --------------    -------------
                                                                                                      (1)
                                                         ASSETS
<S>                                                                                <C>             <C>
Current assets:
     Cash and cash equivalents .................................................   $  2,203         $     45 
     Marketable securities .....................................................     18,500             --
     Billed accounts receivable, less allowance for doubtful accounts of $449                     
         at September 30, 1996 and $652 at December 31, 1995 ...................     16,990           17,661
     Unbilled accounts receivable ..............................................      9,796            9,053
     Other current assets ......................................................      2,948            1,108
                                                                                   --------         --------
         Total current assets ..................................................     50,437           27,867
Marketable securities - noncurrent .............................................     11,281             --
Property and equipment, net ....................................................      5,126            3,128
Employee notes receivable ......................................................         70               80
                                                                                   --------         --------
                                                                                   $ 66,914         $ 31,075
                                                                                   ========         ========
                                                                                                  
                                          LIABILITIES AND SHAREHOLDERS' EQUITY
                                                                                                  
Current liabilities:                                                                              
     Borrowing under line of credit ............................................   $   --           $  8,900
     Accounts payable ..........................................................      1,676            1,331
     Income taxes payable ......................................................       --                218
     Deferred income taxes .....................................................      4,211              326
     Other accrued liabilities .................................................      2,744            2,027
     Deferred revenue ..........................................................      9,427            7,425
                                                                                   --------         --------
         Total current liabilities .............................................     18,058           20,227

Commitments                                                                                       

Shareholders' equity:                                                                             
     Preferred  Stock,  $.001 par value at  September  30, 1996 (no par value at                  
       December 31, 1995):                                                                        
          Authorized shares - 5,000,000                                                           
          Issued and outstanding shares - none .................................       --               --
     Common Stock, $.001 par value at September 30, 1996 (no par value at                         
       December 31, 1995):                                                                        
          Authorized shares - 50,000,000                                                          
          Issued and outstanding shares -18,187,006                                               
            (15,102,222 at December 31, 1995) ..................................         18              609
     Additional capital ........................................................     42,695           18,900
     Other .....................................................................       (375)            (438)
     Retained earnings (deficit) ...............................................      6,518           (8,223)
                                                                                   --------         --------
         Total shareholders' equity ............................................     48,856           10,848
                                                                                   --------         --------
                                                                                   $ 66,914         $ 31,075
                                                                                   ========         ========
<FN>
(1)  Derived from audited financial statements.                                                   
                                                                                             

                                                     See accompanying notes.
</FN>
</TABLE>

                                       2
<PAGE>
<TABLE>

                                                      THE INDUS GROUP, INC.

                                     CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

                                               (In thousands, except share amounts)

                                                           (Unaudited)

<CAPTION>
                                                                                                 Retained
                                                                                                  Earnings           Total
                                                 Common          Additional                      (Accumulated      Shareholders'
                                                  Stock           Capital          Other           Deficit)          Equity
                                                  -----           -------          -----           --------          ------

<S>                                             <C>              <C>              <C>              <C>              <C>       
Balance at December 31,  1994 ...............   $    129         $   --           $   --           $  8,113         $  8,242  
     Issuance of common stock                                                                                     
       as deferred  compensation ............        480             --               (480)            --               --
     Cash distributions to shareholders .....       --               --               --             (9,516)          (9,516)
     Translation  adjustment ................       --               --                 (6)            --                 (6)
     Stock options (2) ......................       --             18,900             --               --             18,900
     Amortization of deferred compensation ..       --               --                 48             --                 48
     Net  loss ..............................       --               --               --             (6,820)          (6,820)
                                                --------         --------         --------         --------         --------
Balance at December 31, 1995 ................        609           18,900             (438)          (8,223)          10,848
                                                                                                                  
     Conversion to C Corporation on                                                                               
        January  1, 1996 ....................       --             (8,223)            --              8,223             --
     Reincorporation and adoption of $.001                                                                        
        par  value ..........................       (494)             494             --               --               --
     Issuance of common stock (1) ...........          3           34,591             --               --             34,594
     Tax benefit from exercise of stock                                                                           
      options ...............................       --              3,636             --               --              3,636
     Purchase of Indus International,                                                                             
      Inc. net assets .......................       (100)              (3)            --               --               (103)
     Unrealized loss on marketable securities       --               --                (51)            --                (51)
     Translation adjustment .................       --               --                 18             --                 18
     Amortization of deferred compensation ..       --               --                 96             --                 96
     Net loss ...............................       --             (6,700)            --              6,518             (182)
                                                --------         --------         --------         --------         --------
Balance at September 30, 1996 ...............   $     18         $ 42,695         $   (375)        $  6,518         $ 48,856
                                                ========         ========         ========         ========         ========
<FN>
                                                                                              
(1)    Consists of $33,864  received from February 29, 1996 initial public offering  (2,500,000  common shares offered at $15 per
       share less underwriting commission and expenses),  $500 received from June 30, 1996 issuance of 39,189 common shares under
       the Employee Stock Purchase Plan and $230 received from the issuance of 545,595 common shares upon exercise of options.

(2)    Value of unexercised stock options of The Indus Group, Inc. upon elimination of contingency feature.



                                                     See accompanying notes.
</FN>

</TABLE>
                                       3
<PAGE>

<TABLE>

                                          THE INDUS GROUP, INC.

                             CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                              (In thousands)

                                               (Unaudited)

<CAPTION>
                                                                                      Nine Months Ended 
                                                                                        September 30,
                                                                                      1996         1995
                                                                                    ---------   ---------
<S>                                                                                 <C>         <C>
Cash flows from operating activities
Net income (loss) ...............................................................   $   (182)   $ (9,522)
Adjustments to reconcile net income to net cash provided by operating activities:
     Compensation charge - stock options ........................................       --        18,900
     Depreciation and amortization ..............................................      1,008         618
     Amortization of deferred compensation ......................................         96          24
     Loss (gain) on sale of fixed assets ........................................          2        --
     Deferred income taxes ......................................................     (2,815)       --
     Cumulative effect of deferred income taxes provided January 1, 1996 ........      6,700        --
     Tax benefit from exercise of stock options .................................      3,636        --
     Changes in operating assets and liabilities:
          Billed accounts receivable ............................................        671      (1,082)
          Unbilled accounts receivable ..........................................       (743)     (3,080)
          Other current assets ..................................................     (1,840)        269
          Employee notes receivable .............................................         10          29
          Accounts payable ......................................................        345        (108)
          Income taxes payable ..................................................       (218)        172
          Other accrued liabilities .............................................        717         572
          Deferred revenue ......................................................      2,002         (99)
          Due to shareholder ....................................................       --           (53)
          Other .................................................................         18           6
                                                                                    --------    --------
Net cash provided by operating activities .......................................      9,407       6,646
                                                                                    --------    --------
Cash flows from investing activities
Purchase of marketable securities ...............................................    (39,132)       --
Sale of marketable securities ...................................................      9,300        --
Acquisition of property and equipment ...........................................     (3,008)        (79)
                                                                                    --------    --------
Net cash used in investing activities ...........................................    (32,840)        (79)
                                                                                    --------    --------
Cash flows from financing activities
Net repayment of line of credit .................................................     (8,900)     (2,005)
Net proceeds from issuance of common stock ......................................     34,594        --
Distribution to shareholders ....................................................       --        (4,517)
Purchase of Indus International, Inc. net assets ................................       (103)       --
                                                                                    --------    --------
Net cash provided by (used in) financing activities .............................     25,591      (6,522)
                                                                                    --------    --------

Net increase in cash and cash equivalents .......................................      2,158          45
Cash and cash equivalents at beginning of period ................................         45          99
                                                                                    --------    --------
Cash and cash equivalents at end of period ......................................   $  2,203    $    144
                                                                                    ========    ========
Supplemental disclosures of cash flow information
Interest paid ...................................................................   $    105    $     34
                                                                                    ========    ========
Income taxes paid ...............................................................   $  5,367    $    215
                                                                                    ========    ========
Supplemental schedule of noncash financing activities
Issuance of common stock in exchange for notes receivable .......................   $   --      $    480
                                                                                    ========    ========
<FN>

                                         See accompanying notes.

</FN>
</TABLE>
                                        4

<PAGE>



                              THE INDUS GROUP, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)

1.       Significant Accounting Policies

         Interim Financial Statements

         The accompanying  unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted  accounting  principles
for interim  financial  information  and with the  instructions to Form 10-Q and
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of management,  all adjustments (consisting
of normal recurring accruals)  considered necessary for a fair presentation have
been  included.  Operating  results  for the three and nine month  period  ended
September  30, 1996 are not  necessarily  indicative  of the results that may be
expected for the fiscal year ending December 31, 1996. For further  information,
refer to the audited  financial  statements and footnotes thereto for the fiscal
year ended December 31, 1995 included in the Company's Registration Statement on
Form S-1 (No.  33-80573)  for its initial  public  offering of common  shares on
February 29, 1996.

         Cash Equivalents and Marketable Securities

         The Company considers all highly liquid, low risk debt instruments with
a  maturity  of  three  months  or less  from the  date of  purchase  to be cash
equivalents.  The Company  generally  invests its cash and cash  equivalents  in
money market accounts.

         The  Company   presently   classifies  all  marketable   securities  as
available-for-sale investments and carries them at fair market value. Marketable
securities  represent U.S.  government  obligations and indirect  investments in
municipal  obligations.  Marketable securities classified as long-term mature no
later than July 1998.  Unrealized  holding gains and losses,  net of taxes,  are
carried as a separate component of shareholders' equity.


2.       Basis of Presentation

         On March 1, 1996, pursuant to an Asset Purchase Agreement,  the Company
purchased  all of the  assets  and  assumed  all of  the  liabilities  of  Indus
International,  Inc.,  an entity  which was  related  to The Indus  Group,  Inc.
through common shareholders. The purchase price of the net assets, which equaled
the net book value,  was $103,252.  Concurrent  with this purchase,  the Company
established  a  new  wholly-owned  subsidiary  to  which  the  net  assets  were
transferred.  The financial  statements  include the accounts of the Company and
Indus International, Inc., which was included on a combined basis prior to March
1, 1996.  All  significant  intercompany  accounts  and  transactions  have been
eliminated.


3.       Issuance of Common Stock

         Initial Public Offering

         On February 29, 1996, the Company  completed an initial public offering
(the "Offering") in which it sold 2,500,000 shares of Common Stock at $15.00 per
share.   The  Offering   raised  net  proceeds  of  $33,863,764   (exclusive  of
underwriting discount and $1,011,236 in related expenses).

         Employee Stock Purchase Plan

         The Company issued 39,189 shares under the 1995 Employee Stock Purchase
Plan  (Plan) on June 30,  1996,  in  exchange  for  $499,700.  The Plan  permits
eligible  employees to purchase Company stock at 85% of the fair market value at
the beginning or end of the six month  purchase  period,  whichever is less. The
next stock purchase date under the Plan is December 31, 1996.

         Exercise of Stock Options

         During the nine months ended  September  30, 1996,  the Company  issued
545,595 shares under the 1992 Stock Option Plan. The Company  received  $230,235
upon the exercise of these options.

                                       5
<PAGE>

                              THE INDUS GROUP, INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

                                   (Unaudited)

4.       Pro Forma Data

         The  pro  forma  data  reflects   adjustments  which  would  have  been
applicable had the Company been a C Corporation in all periods.

         Statements of Operations

         Effective upon its  incorporation  in 1990, the Company elected to have
its United  States  income  taxed  under  Subchapter  S of the Code.  Income tax
provisions through December 31, 1995 have been principally attributable to state
taxes  and  taxes  imposed  by  foreign  governments  on the  Company's  foreign
operations.  The Company's S Corporation status terminated  effective January 1,
1996,  and the  Company  will be  subject  to  federal  income  taxation  at the
corporate level thereafter.  In connection with the termination of S Corporation
status on January 1, 1996,  a one-time  charge  representing  a  cumulative  net
federal and state deferred income tax liability of $6.7 million was recorded.

         For  purposes  of  presenting   comparative  earnings  and  calculating
earnings  per share  data,  pro  forma  net  income  for the nine  months  ended
September  30, 1996  reflects the  elimination  of the $6.7  million  cumulative
deferred  income  tax  charge  upon  converting  from  an S  Corporation  to a C
Corporation.

         Pro forma net income in 1995 reflects provisions for taxes assuming the
Company was taxed as a C Corporation.  Furthermore, pro forma net income data in
1995 includes a $1 million  nonrecurring  compensation  charge  representing the
fair  value  of the  options  granted  in 1995  and  excludes  a  $18.9  million
nonrecurring   compensation   charge   representing  the  value  of  unexercised
non-qualified stock options upon elimination of a contingency feature.

         Per Share Data
<TABLE>

         Pro forma net income per share is  computed  using pro forma net income
and the weighted average number of common and dilutive common  equivalent shares
outstanding  during each period.  Dilutive common  equivalent  shares consist of
incremental  common shares  issuable upon the assumed  exercise of stock options
(using the  treasury  stock  method).  Fully  diluted per share  amounts are not
presented,  as the  effect is not  material.  The  computation  of the  weighted
average number of shares  outstanding for the three and nine month periods ended
September 30, 1996 and 1995 is as follows (in thousands):
<CAPTION>

                                                                               Three Months Ended       Nine Months Ended
                                                                                  September 30,           September 30,
                                                                             ----------------------   ---------------------
                                                                               1996        1995         1996         1995
                                                                             ---------   ----------   ---------    --------
<S>                                                                           <C>          <C>          <C>          <C>    
Weighted average outstanding ..............................................   17,864       15,021       17,200       15,021 
Equivalent shares assumed to be outstanding had options granted                                                     
  prior to 1995 been exercised and used to repurchase shares at their                                               
  then fair value .........................................................    1,537        1,315        1,617        1,315
Shares issued or shares reserved for options granted in 1995,  which shares                                         
  are assumed to be outstanding for all prior periods (as required                                                  
   by SEC Staff Accounting Bulletins Topic 4 D) ...........................     --            519         --            519
Shares assumed to be outstanding equivalent to dividends paid in 1995                                               
  ($9,516,659) divided by expected offering price ($15 per share)                                                   
  (as required by SEC Staff Accounting Bulletins Topic 1B) ................     --            635         --            635
                                                                              ------       ------       ------       ------
                                                                              19,401       17,490       18,817       17,490
                                                                              ======       ======       ======       ======
                                                                                                                    
</TABLE>
                                       6
<PAGE>
ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934.  Actual  results could differ  materially  from those  projected in the
forward-looking  statements  located in the Research and Development  (paragraph
four), Sales and Marketing and Liquidity and Capital Resources  (paragraphs two,
four and five)  sections  as a result of the  factors  set  forth  below,  among
others.

The  Company  has  experienced,  and may in the future  experience,  significant
fluctuations in quarterly revenues and operating results. The Company's revenues
and  operating  results in general,  and in  particular  its  revenues  from new
licenses,  are  relatively  difficult  to  forecast  for a  number  of  reasons,
including (i) the relatively long sales cycles for the Company's products,  (ii)
the variable size and timing of individual license  transactions,  (iii) changes
in demand for the Company's products and services,  (iv) competitive  conditions
in the  industry,  (v)  changes  in  customer  budgets,  (vi) the  timing of new
products or product  enhancements by the Company or its  competitors,  (vii) the
Company's  success in and costs  associated  with developing and introducing new
products,  (viii) product life cycles,  (ix) the timing of revenue  recognition,
(x) changes in the  proportion of revenues  attributable  to license fees versus
services,  (xi)  changes  in the level of  operating  expenses,  (xii)  delay or
deferral of customer implementations of the Company's software,  (xiii) software
defects and other product quality problems,  and (xiv) other economic conditions
generally or in specific process industry segments. Further, the purchase of the
Company's products generally involves a significant  commitment of capital, with
the attendant delays frequently  associated with large capital  expenditures and
authorization  procedures  within  large  organizations.  For  these  and  other
reasons,  the sales cycles for the Company's  products are typically lengthy and
subject to a number of significant risks over which the Company has little or no
control,  including  customers'  budget  constraints and internal  authorization
reviews. In addition,  delays in the completion of a product  implementation may
require that the revenues associated with such implementation be recognized over
a longer period than originally  anticipated.  Such delays in the implementation
or  execution  of orders  have  caused,  and may in the future  cause,  material
fluctuations in the Company's operating results. Similarly, customers may cancel
implementation projects at any time, and such cancellation could have a material
adverse effect on the Company's  business or results of operations.  Because the
Company's  expenses are  relatively  fixed,  a small  variation in the timing of
recognition of specific revenues can cause  significant  variations in operating
results from quarter to quarter and may in some future  quarter result in losses
or have a  material  adverse  effect on the  Company's  business  or  results of
operations.

Results of Operations

Overview.  The Indus Group, Inc. develops,  markets,  and supports a proprietary
line of enterprise  management software and implementation  services for process
industry  customers  worldwide.  Taking advantage of the client/server  model of
networked   computing,   PASSPORT  Software  Solutions  contain  "best  business
practices" which serve as the catalyst for improving core  operational  business
functions  for  electric  utilities,  oil and  gas,  chemical  refining,  forest
products,  nuclear and steel  producing  industries.  ABACUS,  The Indus Group's
proprietary methodology, accelerates the realization of benefits by delivering a
reliable  cost  and  time-efficient   approach  to  implementation   across  the
enterprise.

The  Company   derives  its   revenues   primarily   from   software   licenses,
implementation and training services and maintenance fees. While the Company has
derived the majority of its revenues  from electric  utilities,  it also derives
revenues  from  customers in other  process  industries,  including oil and gas,
chemical refining,  nuclear,  steel and forest product industries.  Furthermore,
the Company  continues  to expand  into other  facility-driven  industries.  For
example,  during the third quarter of 1996, the Company announced it was awarded
software and services  contracts to provide  facility  management  at one of the
nation's  largest  consumer  insurance  companies  and at a Department of Energy
(DOE) facility,  Los Alamos National Laboratory.  There can be no assurance that
these type of contracts will lead to other similar revenue opportunities.

The Company provides its software to customers under contracts which provide for
software  license  fees,  system  implementation  services and the first year of
software maintenance.  Revenues from software license fees, which typically have
ranged from approximately $1 million to $5 million per enterprise  license,  are
recognized  as earned  revenue  over the  estimated  time period to complete the
implementation  of the software,  which generally is twelve to fourteen  months.
Revenues  from system  implementation  services,  which  typically are time- and
material-based,  are  recognized  as  direct  contract  costs are  incurred  and
typically range from one to three times the license fees. Accordingly,  revenues
for each quarter  depend in part on revenues  from the closing of new  contracts
during the quarter as well as revenue from contracts under  implementation  that
were executed in prior quarters. A portion of license fees is deferred initially
and  subsequently  recognized over the one-year  period during which  continuing
maintenance and support  services are provided to customers under the contracts.
After an initial contract period,  additional  maintenance and support services,
for which the Company  typically  charges 15-18% of the original license fee per
year, are subject to separate  agreements  whereby revenue is recognized ratably
over the agreement period.

                                       7
<PAGE>

Results of Operations (continued)
<TABLE>

The following table sets forth for the periods indicated the percentage of total
revenues  represented  by certain  line  items in the  Company's  statements  of
operations:
<CAPTION>

                                                 Percent of Total Revenues

                                                                            Three Months Ended         Nine Months Ended
                                                                               September 30,              September 30,
                                                                            --------------------      -------------------
                                                                              1996        1995         1996         1995
                                                                             -----       -----        -----        -----
<S>                                                                          <C>         <C>          <C>          <C>
Revenues:
     Software licensing  fees ..........................................      21.4%       19.4%        22.1%        21.5%  
     Services and maintenance ..........................................      78.6        80.6         77.9         78.5
                                                                             -----       -----        -----        -----
          Total revenues ...............................................     100.0       100.0        100.0        100.0
Cost of  revenues ......................................................      42.8        44.2         41.5         41.6
                                                                             -----       -----        -----        -----
Gross margin ...........................................................      57.2        55.8         58.5         58.4
Operating expenses:                                                                                              
     Research and  development .........................................      14.5        17.4         17.7         15.5
     Sales and  marketing ..............................................      11.8        10.6         11.5         10.4
     General and administrative ........................................       9.9         8.4         10.4          7.9
     Compensation charge - stock options ...............................        --       142.1           --         49.0
                                                                             -----       -----        -----        -----
          Total operating  expenses ....................................      36.2       178.5         39.6         82.8
                                                                             -----       -----        -----        -----
Income (loss) from operations ..........................................      21.0      (122.7)        18.9        (24.4)
Other income, net ......................................................       1.9         0.2          1.5           .3
                                                                             -----       -----        -----        -----
Income (loss) before income taxes ......................................      22.9      (122.5)        20.4        (24.1)
Provision for income taxes (state and foreign only in 1995) ............       9.6         0.2          8.4          0.6
Cumulative effect of deferred income taxes provided upon January 1, 1996                                         
   conversion to C-Corporation  status .................................        --          --         12.3           --   
                                                                             -----       -----        -----        -----
Net income  (loss) .....................................................      13.3%     (122.7%)        (.3%)      (24.7%)
                                                                             =====       =====        =====        =====
Pro forma statement of operations:                                                                               
     Income (loss) before income taxes, as above .......................      22.9%     (122.5%)       20.4%       (24.1%)
     Compensation charge - stock options ...............................        --          --           --         (2.6)
     Add back portion of compensation charge - stock options ...........        --       142.1           --         49.0
                                                                             -----       -----        -----        -----
     Income before income taxes, as  adjusted ..........................      22.9        19.6         20.4         22.3
     Provision for income taxes (federal, state and foreign) ...........       9.6         8.2          8.4          9.4
                                                                             -----       -----        -----        -----
     Pro forma net income per  share ...................................      13.3%       11.4%        12.0%        12.9%
                                                                             =====       =====        =====        =====
</TABLE>

Revenues.  Total  revenues  increased  50% to $20.0 million in the quarter ended
September 30, 1996 from $13.3 million in 1995. In the first nine months of 1996,
total  revenues  increased by 41% to $54.5  million from $38.6  million in 1995.
Revenue from international customers (excluding Canada and Mexico) accounted for
13% and 17% of revenues  for the quarter and nine  months  ended  September  30,
1996,  respectively,  and 4% and  8% for  the  quarter  and  nine  months  ended
September  30,  1995,  respectively.  As most  of the  Company's  contracts  are
denominated in U.S. dollars, foreign currency fluctuations have not impacted the
results of operations.  The top five customers of the Company have accounted for
approximately  45-50% of revenues for all periods presented.  The composition of
the top five customers has changed from year to year,  with the exception of one
customer which accounted for 8% of total revenue for the quarter ended September
30, 1996 and 11% of total revenue for the quarter ended September 30, 1995.

                                       8

<PAGE>

Results of Operations (continued)

Revenues  from  licensing  fees  increased by 65% to $4.3 million in the quarter
ended  September 30, 1996 from $2.6 million in 1995. In the first nine months of
1996,  licensing  fees  increased  by 45% to $12.0  million from $8.3 million in
1995. License fees as a percentage of revenue were 21.4% and 19.4% for the three
months  ended  September  30,  1996 and  1995,  and 22.1% and 21.5% for the nine
months ended  September  30, 1996 and 1995.  The license fee growth from 1995 to
1996  resulted  primarily  from new  international  contracts  and  several  new
significant domestic contracts.

Revenues from services and maintenance  increased by 47% to $15.7 million in the
quarter  ended  September 30, 1996 from $10.7 million in 1995. In the first nine
months of 1996,  services and maintenance revenue increased 40% to $42.4 million
from $30.3 million in 1995. The service and maintenance revenue growth from 1995
to  1996  resulted  primarily  from  implementation  services  generated  by new
international  customers,   several  new  significant  domestic  contracts,  and
additional implementation projects with existing customers.

The Company does not believe that the revenue  growth  experienced  in the first
nine months of 1996 is  necessarily  indicative  of any revenue  growth that may
occur in future periods.

Cost of Revenues.  Cost of revenues  consists  primarily  of: (i)  personnel and
related costs for implementation  (including account executive  personnel),  and
(ii)  personnel  and related costs for training and customer  support  services.
Substantially all of the cost of revenues is attributable to providing  services
and  maintenance.  Costs of software  license fees,  which consist  primarily of
packaging and production  costs,  are not  significant and are not segregated in
the Company's accounting records. All software development costs are expensed to
research and development as incurred.

Cost of revenues  increased 46% to $8.6 million in the quarter  ended  September
30, 1996 from $5.9  million in 1995.  In the first nine months of 1996,  cost of
revenues  increased by 41% to $22.6 million from $16.0 million in 1995. The 1996
increase in absolute dollars in cost of revenues was due principally to the need
for  additional  personnel to service the Company's  customers.  As a percent of
total  revenue,  cost of  revenues  decreased  to 42.8%  for the  quarter  ended
September  30,  1996 from 44.2% in 1995.  For the first nine  months of 1996 and
1995, the cost of revenues as a percent of total revenue  remained fairly steady
at 41.5% and 41.6%, respectively.  Variations in the cost of sales percentage is
partially due to changes in the level of low-margin  reimbursable  expenses. The
Company's  accounting policy is to record direct  reimbursable  costs as revenue
when  billed  to the  customer,  which is then  offset  by the  related  cost of
revenues.  Since the direct  reimbursable  costs have little or no margin,  they
have the effect of decreasing the Company's gross margin

Research and  Development  (R&D).  Research  and  development  expenses  consist
primarily of: (i) personnel and related costs and (ii) computer  timeshare costs
directly  attributable to the development of new software application  products,
enhancements  to  existing  products  and the  costs of  porting  the  Company's
products to different platforms.

Research and development  expenses  increased 26% to $2.9 million in the quarter
ended  September 30, 1996 from $2.3 million in 1995. In the first nine months of
1996,  research and development  expenses  increased by 61% to $9.6 million from
$6.0 million in 1995.  Research and  development  expenses as a percent of total
revenue  decreased to 14.5% for the quarter ended  September 30, 1996 from 17.4%
in 1995 due to the  increase in revenues  for the  comparable  periods.  For the
first nine  months of 1996 and 1995,  research  and  development  expenses  as a
percent of total revenue were 17.7% and 15.5%, respectively.

R&D investment  increased in absolute dollars in 1996 as compared to 1995 due to
the Company devoting substantial development resources towards incorporating new
technologies into PASSPORT and designing additional PASSPORT  applications.  The
Company  continues to invest research and development  efforts for modifications
of existing  applications  and  development of new  technologies,  including the
capability  to  support   additional   platforms,   databases,   graphical  user
interfaces,  toolsets and emerging  technologies.  The Company  believes  that a
significant level of R&D is essential to remain competitive and will continue to
invest  development   resources  towards  incorporating  new  technologies  into
PASSPORT  and  designing  additional  PASSPORT  functionality.  The amount for a
particular period may vary depending on the projects in progress.

INDUS has historically developed its own applications.  During 1996, the Company
devoted R&D resources to the development of General Ledger, Asset Management and
Financial  Planning  applications.  In response to time-to-market  demands,  the
Company recently  formalized  strategic product  relationships  with third party
vendors who will blend their  financial  and  customer  information/order  entry
applications with PASSPORT.  As a result, the Company has halted the development
of the General Ledger, Asset Management and Financial Planning  applications.  A
portion of the R&D expenditures  allocated to the financial  application project
will be  realigned  to (i) the  software  integration  development  necessary to
provide  seamless  integration with our strategic  partners'  offerings and (ii)
sales and marketing efforts.

                                       9
<PAGE>
Results of Operations (continued)

In accordance with Statement of Financial  Accounting Standards No. 86, software
development  costs are expensed as incurred until  technological  feasibility of
the software is established,  after which any additional  costs are capitalized.
To date,  the  Company has  expensed  all  software  development  costs  because
development  costs incurred  subsequent to the  establishment  of  technological
feasibility have not been material.

Sales and Marketing.  Sales and marketing expenses increased 66% to $2.4 million
in the quarter ended  September 30, 1996 from $1.4 million in 1995. In the first
nine  months of 1996,  sales and  marketing  expenses  increased  by 57% to $6.3
million  from $4.0  million in 1995.  As a percent of total  revenue,  sales and
marketing  expenses  increased to 11.8% in the quarter ended  September 30, 1996
from 10.6% in 1995 and to 11.5% in the nine months ended September 30, 1996 from
10.4% in 1995.  The growth in sales and marketing  expenses is primarily due to:
(i) the addition of personnel,  (ii) expansion into new  international  sectors,
(iii)  changes in the mix of the  revenue  base on which  commission  expense is
generated and (iv) additional costs related to the annual International PASSPORT
Users Group conference.  The Company believes that sales and marketing  expenses
as a percentage of total revenues may increase as it (i) expands its presence in
the marketplace,  (ii) initiates operations in additional international markets,
(iii) develops new and existing  marketing and product  strategic  alliances and
(iv) increases focus on specific markets, such as Transmission and Distribution.

General and Administrative. General and administrative expenses increased 77% to
$2.0 million in the quarter ended  September 30, 1996 from $1.1 million in 1995.
In the first nine months of 1996, general and administrative  expenses increased
by 85% to $5.7 million from $3.1 million in 1995. As a percent of total revenue,
general and  administrative  expenses were 9.9% and 8.4% for the quarters  ended
September 30, 1996 and 1995, respectively. For the first nine months of 1996 and
1995, the general and administrative  expenses as a percent of total revenue was
10.4% and 7.9%, respectively.  The growth in general and administrative expenses
is primarily a result of: (i) incremental expenditures related to being a public
company and (ii) an expansion in staffing to support the Company's growth.

Provision  for Income  Taxes.  Effective  upon its  incorporation  in 1990,  the
Company elected to have its United States income taxed under Subchapter S of the
Code.  Accordingly,  income  tax  provisions  prior  to  1996  were  principally
attributable  to state  taxes and taxes  imposed by foreign  governments  on the
Company's  foreign  operations.  The Company's S Corporation  status  terminated
effective  January 1, 1996,  and the Company  will be subject to federal  income
taxation at the corporate level thereafter.  In relation to the termination of S
Corporation  status as of January 1, 1996,  a  one-time  charge  representing  a
cumulative net federal and state  deferred  income tax liability of $6.7 million
was recorded.

Net Income (Loss). The net loss for the nine months ended September 30, 1996 was
the result of the $6.7 million  cumulative  deferred income tax liability charge
upon  elimination  of the S Corporation  status.  The net loss for the three and
nine  months  ended  September  30,  1995  was the  result  of a  $18.9  million
nonrecurring   compensation   charge   representing  the  value  of  unexercised
non-qualified stock options upon elimination of a contingency  feature.

Pro Forma Net  Income.  For  purposes of  presenting  comparative  earnings  and
calculating  earnings  per share data,  pro forma net income for the nine months
ended   September  30,  1996  reflects  the  elimination  of  the  $6.7  million
nonrecurring  cumulative  deferred  income tax charge upon  converting from an S
Corporation to a C Corporation. Pro forma net income in 1995 reflects provisions
for taxes  assuming the Company was taxed as a C Corporation.  Furthermore,  pro
forma net income data in 1995  includes a $1 million  nonrecurring  compensation
charge representing the fair value of the options granted in 1995 and excludes a
$18.9  million  nonrecurring  compensation  charge  representing  the  value  of
unexercised  non-qualified  stock  options  upon  elimination  of a  contingency
feature.

                                       10
<PAGE>

Liquidity and Capital Resources

The Company had total assets of $66.9 million and $31.1 million at September 30,
1996 and December 31, 1995, respectively. Historically, the Company has financed
its operations  primarily through cash provided by operations,  borrowings under
its line of credit  and, to lesser  extent,  through  borrowings  from its Chief
Executive Officer and principal shareholder. In March 1996, the Company received
$33.9 million,  representing  the proceeds (net of underwriting  commissions and
offering  costs)  from an initial  public  offering of  2,500,000  shares of its
Common  Stock.  These  proceeds  were  used to  purchase  marketable  securities
(comprised  of  municipal  and U.S.  government  obligations)  and certain  cash
equivalent instruments.

As of September 30, 1996, the Company's principal sources of liquidity consisted
of approximately  $2.2 million in cash and cash equivalents and $29.7 million in
marketable securities.  In addition, the Company has an unsecured revolving bank
line of credit agreement which permits borrowings, including stand-by letters of
credit,  of up to $15 million.  The facility expires in May 1997,  however,  the
Company  believes it will be able to renew this agreement or replace it on terms
acceptable to the Company.  No borrowings  were  outstanding  under this line at
September 30, 1996.

In the nine  months  ended  September  30,  1996,  cash,  cash  equivalents  and
marketable securities increased substantially as a result of cash generated from
operations  ($9.3 million) and cash proceeds from the issuance of shares through
an initial  public  offering and  employee  stock  purchase and option  programs
($34.6  million).  The  principal  uses of  operating  cash were the purchase of
property and equipment and the repayment of the line of credit. The reduction in
the line of  credit  was  fully  funded  by  operations.  The  Company  utilized
approximately  $4.8  million  of initial  public  offering  proceeds  to pay for
offering  costs and estimated  income taxes.  Cash paid for income taxes for the
nine months ended  September  30, 1996 and 1995 was $5.4  million and  $215,000,
respectively.

Cash  requirements  are  expected to continue to increase in order to fund:  (i)
personnel and salary costs, (ii) investment in additional  technical  equipment,
and (iii)  working  capital  requirements.  The  Company  presently  anticipates
additional capital  expenditures for the remainder of 1996 of approximately $1.0
million. The Company's principal commitments at September 30, 1996, consisted of
obligations under operating leases for facilities and computer equipment.

The Company believes that its existing cash and marketable securities,  together
with anticipated  cash flow from operations and available bank borrowings,  will
be  sufficient  to meet its cash  requirements  during the next 12  months.  The
foregoing statement regarding the Company's expectations for continued liquidity
is a  forward-looking  statement,  and  actual  results  may  differ  materially
depending  on a variety of  factors,  including  variable  operating  results or
presently unexpected usage's of cash, such as acquisitions.

                                       11
<PAGE>

PART II: OTHER INFORMATION


ITEM 1.       LEGAL PROCEEDINGS

              There are no pending legal  proceedings  to which the Company is a
              party or of which any of its property is subject.


ITEM 2.       CHANGES IN SECURITIES

              None.


ITEM 3.       DEFAULTS UPON SENIOR SECURITIES

              None.


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

              None.


ITEM 5.       OTHER INFORMATION

              In  September  1996 Mr. Frank  Siskowski  was hired as Senior Vice
              President of Finance and Chief Financial  Officer.  In August 1996
              Mr.  Charles  Rosselle  resigned as Senior Vice President and Vice
              President of Operations.


ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K

              (a) Exhibits.

              10.01  Fourth   Amendment  to  Commercial   Loan  Agreement  dated
                     September 6, 1996 with Sumitomo Bank of California.
              10.02  Amendments to The Indus Group, Inc. 1992 Stock Option Plan.
              11.01  Statement of Computation of Pro Forma Net Income Per Share.
              27.01  Financial Data Schedule.


              (b) Reports on Forms 8-K.

              No reports on Form 8-K were filed  during the  Quarter  covered by
              this report.


                                       12

<PAGE>

                                   SIGNATURES


Pursuant  to the  requirements  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.





                                 THE INDUS GROUP, INC.
                                     (Registrant)





Date:  November 13, 1996
                                  /s/ Robert W. Felton
                                  ----------------------------------------
                                  Robert W. Felton
                                  President and Chief Executive Officer





Date:  November 13, 1996
                                  /s/ Frank W. Siskowski
                                  ----------------------------------------
                                  Frank W. Siskowski
                                  Senior Vice President of Finance and
                                   Chief Financial Officer
                                   (Principal Financial and Accounting Officer)


                                       13
<PAGE>

                                INDEX TO EXHIBITS


                                                                    Sequentially
                                                                      Numbered
Exhibit             Description                                         Page
-------             -----------                                         ----

10.01     Fourth  Amendment to Commercial Loan Agreement dated
          September 6, 1996 with Sumitomo Bank of California.
10.02     Amendments to The Indus Group, Inc. 1992 Stock Option Plan.
11.01     Statement of Computation of Pro Forma Net Income Per Share.
27.01     Financial Data Schedule.