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



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FORM 10-Q

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

For the quarterly period ended June 30, 2001

OR

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

Commission File Number 0-27574



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PowerCerv Corporation
(Exact name of registrant as specified in its charter)

|                                |  |                    
|------------------------------- |  | -------------------
|Florida                         |  | 59-3350778         
|                               
|                               
|                               
|                               
|(State or other jurisdiction of |  | (I.R.S. Employer   
|                               
|                               
|                               
|                               
|incorporation or organization)  |  | Identification No.)

400 North Ashley Drive, Suite 2700, Tampa, Florida 33602
(Address of principal executive offices, including zip code)

(813) 226-2600
(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 August 8, 2001, there were 1,534,538 shares of the registrants common
stock, $.001 par value, outstanding.



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TABLE OF CONTENTS



|                                                                                              |                                                                  |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- |  |  |  |  |  |  | 
|Part I. FINANCIAL INFORMATION                                                                
|Item 1. Financial Statements                                                                 
|                                                                                              | Condensed Consolidated Balance Sheets                           
|                                                                                              | Condensed Consolidated Statements of Operations (Unaudited)     
|                                                                                              | Condensed Consolidated Statements of Cash Flows (Unaudited)     
|                                                                                              | Notes to Condensed Consolidated Financial Statements (Unaudited)
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|Item 3. Quantitative and Qualitative Disclosure About Market Risk                            
|Part II. Other Information                                                                   
|Item 1. Legal Proceedings                                                                    
|Item 4. Submission of Matters to a Vote of Security Holders                                  
|Item 6. Exhibits and Reports on Form 8-K                                                     
|Signatures                                                                                   
|Accountants' Letter                                                                          



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##### Table of Contents



PowerCerv Corporation
Form 10-Q

Index

|                                                                                              |                                                                                                                       |  |      |   | 
|--------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- |  | ---- | - | 
|                                                                                              |                                                                                                                       |  | Page
|Part I.  Financial Information                                                                |                                                                                                                       |  |      |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                       |  |      |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 1. Financial Statements                                                                  |                                                                                                                       |  |      |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                       |  |      |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Condensed Consolidated Balance Sheets as of June 30, 2001 (unaudited)
and December 31, 2000                           |  |      | 2 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Condensed Consolidated Statements of Operations for the Three and Six Months Ended
June 30, 2001 and 2000 (unaudited) |  |      | 3 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Condensed Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2001 and 2000 (unaudited)           |  |      | 4 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Notes to Condensed Consolidated Financial Statements (unaudited)                                                      |  |      | 5 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations |                                                                                                                       |  | 10   |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 3. Quantitative and Qualitative Disclosure about Market Risk                             |                                                                                                                       |  | 17   |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Independent Certified Public Accountants Review Report                                       |                                                                                                                       |  | 18   |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                       |  |      |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Part II.  Other Information                                                                   |                                                                                                                       |  |      |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                       |  |      |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 1. Legal Proceedings                                                                     |                                                                                                                       |  | 19   |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 4. Submission of Matters to a Vote of Security Holders                                   |                                                                                                                       |  | 19   |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                                       |  | 20   |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                                                                                                       |  |      |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Signatures                                                                                    |                                                                                                                       |  | 21   |  

1



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##### Table of Contents






Part I.  FINANCIAL INFORMATION




Item 1. Financial Statements




PowerCerv Corporation

Condensed Consolidated Balance Sheets(In thousands)

|                                                                          |                                                                          |                                            |       |             |       |              |       |       |       | 
|------------------------------------------------------------------------- | ------------------------------------------------------------------------ | ------------------------------------------ | ----- | ----------- | ----- | ------------ | ----- | ----- | ----- | 
|                                                                          |                                                                          |                                            |       | June 30,    |       | December 31,
|                                                                          |                                                                          |                                            |       | 2001        |       | 2000        
|                                                                          |                                                                          |                                            |       |             |       |             
|                                                                          |                                                                          |                                            |       | (unaudited) |       |              |       |      
|Assets                                                                    |                                                                          |                                            |       |             |       |              |       |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Current assets:                                                           |                                                                          |                                            |       |             |       |              |       |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Cash and cash equivalents                                                |                                            | $     | 1,147       |       |              | $     | 2,136 |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accounts receivable, net of allowance of $1,940 and
$1,831, respectively |                                            |       | 2,063       |       |              |       | 2,538 |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Other current assets                                                     |                                            |       | 682         |       |              |       | 668   |      
|                                                                          |                                                                          |                                            |       |             |       |              |       |      
|                                                                          |                                                                          | Total current assets                       |       |             | 3,892 |              |       |       | 5,342 | 
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Property and equipment, net                                               |                                                                          |                                            | 234   |             |       |              | 511   |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Intangible assets, net                                                    |                                                                          |                                            | 469   |             |       |              | 565   |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Notes receivable, net                                                     |                                                                          |                                            | 765   |             |       |              | 888   |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Deposits and other assets                                                 |                                                                          |                                            | 28    |             |       |              | 28    |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Deferred tax asset, net of allowance of $13,016 and
$12,335, respectively |                                                                          |                                            |      |             |       |              |      |      
|                                                                          |                                                                          |                                            |       |             |       |              |       |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                          | Total assets                               |       | $           | 5,388 |              |       | $     | 7,334 | 
|                                                                          |                                                                          |                                            |       |             |       |              |       |      
|                                                                          |                                                                          |                                            |       |             |       |              |       |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Liabilities and Shareholders Equity                                      |                                                                          |                                            |       |             |       |              |       |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Current liabilities:                                                      |                                                                          |                                            |       |             |       |              |       |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accounts payable                                                         |                                            | $     | 792         |       |              | $     | 508   |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Accrued expenses                                                         |                                            |       | 1,663       |       |              |       | 1,719 |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          | Deferred revenue                                                         |                                            |       | 1,321       |       |              |       | 1,490 |      
|                                                                          |                                                                          |                                            |       |             |       |              |       |      
|                                                                          |                                                                          | Total current liabilities                  |       |             | 3,776 |              |       |       | 3,717 | 
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                          |                                            |       |             |       |              |       |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Shareholders equity                                                      |                                                                          |                                            | 1,612 |             |       |              | 3,617 |      
|                                                                          |                                                                          |                                            |       |             |       |              |       |      
|                                                                          |                                                                          |                                            |       |             |       |              |       |      
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                          |                                                                          | Total liabilities and shareholders equity |       | $           | 5,388 |              |       | $     | 7,334 | 
|                                                                          |                                                                          |                                            |       |             |       |              |       |      

See accompanying independent certified public accountants review report and
notes to condensed consolidated financial statements.

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PowerCerv Corporation

Condensed Consolidated Statements of Operations (Unaudited)(In thousands, except per share amounts)

|                                             |                                |         |                          |                                 |      |                             |       |                           |       |        |        |       |       |        |        |       |       |        |        |  
|-------------------------------------------- | ------------------------------ | ------- | ------------------------ | ------------------------------- | ---- | --------------------------- | ----- | ------------------------- | ----- | ------ | ------ | ----- | ----- | ------ | ------ | ----- | ----- | ------ | ------ | -
|                                             |                                |         |                          |                                 |      | Three months ended June 30, |       | Six months ended June 30,
|                                             |                                |         |                          |                                 |      | 2001                        |       | 2000                      |       | 2001   |        | 2000 
|                                             |                                |         |                          |                                 |      |                             |       |                           |       |        |        |      
|Revenues:                                    |                                |         |                          |                                 |      |                             |       |                           |       |        |        |       |       |        |        |      
|                                            
|                                            
|                                            
|                                            
|                                             | License fees                   |         | $                        | 633                             |      |                             | $     | 1,208                     |       |        | $      | 1,086 |       |        | $      | 1,527 |      
|                                            
|                                            
|                                            
|                                            
|                                             | Service fees                   |         |                          | 1,170                           |      |                             |       | 2,117                     |       |        |        | 2,576 |       |        |        | 4,304 |      
|                                             |                                |         |                          |                                 |      |                             |       |                           |       |        |        |       |       |        |        |      
|                                            
|                                            
|                                            
|                                            
|                                             |                                |         | Total revenues           |                                 |      | 1,803                       |       |                           |       | 3,325  |        |       |       | 3,662  |        |       |       | 5,831  |       
|                                             |                                |         |                          |                                 |      |                             |       |                           |       |        |        |       |       |        |        |      
|Costs and expenses:                          |                                |         |                          |                                 |      |                             |       |                           |       |        |        |       |       |        |        |      
|                                            
|                                            
|                                            
|                                            
|                                             | Cost of licenses               |         |                          | 79                              |      |                             |       | 101                       |       |        |        | 157   |       |        |        | 239   |      
|                                            
|                                            
|                                            
|                                            
|                                             | Cost of services               |         |                          | 875                             |      |                             |       | 1,696                     |       |        |        | 1,968 |       |        |        | 3,390 |      
|                                            
|                                            
|                                            
|                                            
|                                             | General and administrative     |         |                          | 683                             |      |                             |       | 1,150                     |       |        |        | 1,293 |       |        |        | 2,411 |      
|                                            
|                                            
|                                            
|                                            
|                                             | Sales and marketing            |         |                          | 450                             |      |                             |       | 1,692                     |       |        |        | 1,005 |       |        |        | 3,447 |      
|                                            
|                                            
|                                            
|                                            
|                                             | Research and development       |         |                          | 493                             |      |                             |       | 1,127                     |       |        |        | 1,091 |       |        |        | 2,347 |      
|                                            
|                                            
|                                            
|                                            
|                                             | Work force reduction and other |         |                          | 24                              |      |                             |       | 711                       |       |        |        | 193   |       |        |        | 711   |      
|                                             |                                |         |                          |                                 |      |                             |       |                           |       |        |        |       |       |        |        |      
|                                             |                                |         | Total costs and expenses |                                 |      | 2,604                       |       |                           |       | 6,477  |        |       |       | 5,707  |        |       |       | 12,545 |       
|                                             |                                |         |                          |                                 |      |                             |       |                           |       |        |        |       |       |        |        |      
|                                             |                                |         | Operating loss           |                                 |      | (801                        | )     |                           |       | (3,152 | )      |       |       | (2,045 | )      |       |       | (6,714 | )     
|                                            
|                                            
|                                            
|                                            
|Interest and other income (expense),
net     |                                |         | 18                       |                                 |      |                             | 18    |                           |       |        | 51     |       |       |        | (73    | )    
|                                             |                                |         |                          |                                 |      |                             |       |                           |       |        |        |       |       |        |        |      
|                                             |                                |         |                          | Loss before income taxes        |      |                             | (783  | )                         |       |        | (3,134 | )     |       |        | (1,994 | )     |       |        | (6,787 | )
|                                            
|                                            
|                                            
|                                            
|Income tax expense                           |                                |         |                         |                                 |      |                             |      |                           |       |        | 10     |       |       |        | 248    |      
|                                             |                                |         |                          |                                 |      |                             |       |                           |       |        |        |       |       |        |        |      
|                                             |                                |         |                          | Net loss and comprehensive loss |      | $                           | (783  | )                         |       | $      | (3,134 | )     |       | $      | (2,004 | )     |       | $      | (7,035 | )
|                                             |                                |         |                          |                                 |      |                             |       |                           |       |        |        |       |       |        |        |      
|Net loss per share:                          |                                |         |                          |                                 |      |                             |       |                           |       |        |        |       |       |        |        |      
|                                            
|                                            
|                                            
|                                            
|                                             |                                | Basic   |                          | $                               | (.51 | )                           |       | $                         | (2.04 | )      |        | $     | (1.31 | )      |        | $     | (4.61 | )     
|                                             |                                |         |                          |                                 |      |                             |       |                           |       |        |        |       |       |        |        |      
|                                             |                                | Diluted |                          | $                               | (.51 | )                           |       | $                         | (2.04 | )      |        | $     | (1.31 | )      |        | $     | (4.61 | )     
|                                             |                                |         |                          |                                 |      |                             |       |                           |       |        |        |       |       |        |        |      
|Shares used in computing net loss
per share: |                                |         |                          |                                 |      |                             |       |                           |       |        |        |       |       |        |        |      
|                                            
|                                            
|                                            
|                                            
|                                             |                                |         |                          | Basic                           |      |                             | 1,535 |                           |       |        | 1,535  |       |       |        | 1,535  |       |       |        | 1,526  |  
|                                             |                                |         |                          |                                 |      |                             |       |                           |       |        |        |       |       |        |        |      
|                                             |                                |         |                          | Diluted                         |      |                             | 1,535 |                           |       |        | 1,535  |       |       |        | 1,535  |       |       |        | 1,526  |  
|                                             |                                |         |                          |                                 |      |                             |       |                           |       |        |        |       |       |        |        |      

See accompanying independent certified public accountants review report and
notes to condensed consolidated financial statements.

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PowerCerv Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)(In thousands)

|                                               |                                                                             |                                   |                                             |                                                 |      |                           |        |        |       |        |     | 
|---------------------------------------------- | --------------------------------------------------------------------------- | --------------------------------- | ------------------------------------------- | ----------------------------------------------- | ---- | ------------------------- | ------ | ------ | ----- | ------ | --- | 
|                                               |                                                                             |                                   |                                             |                                                 |      | Six months ended June 30,
|                                               |                                                                             |                                   |                                             |                                                 |      |                          
|                                               |                                                                             |                                   |                                             |                                                 |      | 2001                      |        | 2000  
|                                               |                                                                             |                                   |                                             |                                                 |      |                           |        |       
|Cash flows from operating activities:          |                                                                             |                                   |                                             |                                                 |      |                           |        |       
|                                              
|                                              
|                                              
|                                              
|                                               | Net loss                                                                    |                                   | $                                           | (2,004                                          | )    |                           | $      | (7,035 | )    
|                                              
|                                              
|                                              
|                                              
|                                               | Adjustments to reconcile net loss to net cash
used in operating activities: |                                   |                                             |                                                 |      |                           |        |        |      
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                             | Depreciation and amortization     |                                             |                                                 | 387  |                           |        |        | 399   |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                             | Deferred revenue                  |                                             |                                                 | (168 | )                         |        |        | (418  | )     
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                             | Changes in assets and liabilities |                                             |                                                 | 697  |                           |        |        | 3,044 |       
|                                               |                                                                             |                                   |                                             |                                                 |      |                           |        |       
|                                               |                                                                             |                                   | Net cash flows used in operating activities |                                                 |      | (1,088                    | )      |        |       | (4,010 | )  
|                                               |                                                                             |                                   |                                             |                                                 |      |                           |        |       
|Cash flows from investing activities:          |                                                                             |                                   |                                             |                                                 |      |                           |        |       
|                                              
|                                              
|                                              
|                                              
|                                               | Return of investment in third party                                         |                                   |                                             |                                                |      |                           |        | 500    |      
|                                              
|                                              
|                                              
|                                              
|                                               | Payment received on notes receivable                                        |                                   |                                             | 114                                             |      |                           |        |       |      
|                                              
|                                              
|                                              
|                                              
|                                               | Purchase of intangible asset                                                |                                   |                                             |                                                |      |                           |        | (250   | )    
|                                              
|                                              
|                                              
|                                              
|                                               | Purchases of property and equipment, net                                    |                                   |                                             | (15                                             | )    |                           |        | (32    | )    
|                                               |                                                                             |                                   |                                             |                                                 |      |                           |        |       
|                                               |                                                                             |                                   |                                             | Net cash flows provided by investing activities |      |                           | 99     |        |       |        | 218 | 
|                                               |                                                                             |                                   |                                             |                                                 |      |                           |        |       
|Cash flows from financing activities:          |                                                                             |                                   |                                             |                                                 |      |                           |        |       
|                                              
|                                              
|                                              
|                                              
|                                               | Net proceeds from issuance of common stock                                  |                                   |                                             |                                                |      |                           |        | 871    |      
|                                               |                                                                             |                                   |                                             |                                                 |      |                           |        |       
|                                               |                                                                             |                                   |                                             | Net cash flows provided by financing activities |      |                           |       |        |       |        | 871 | 
|                                               |                                                                             |                                   |                                             |                                                 |      |                           |        |       
|Net decrease in cash and cash equivalents      |                                                                             |                                   | (989                                        | )                                               |      |                           | (2,921 | )     
|                                              
|                                              
|                                              
|                                              
|Cash and cash equivalents, beginning of period |                                                                             |                                   | 2,136                                       |                                                 |      |                           | 6,224  |       
|                                               |                                                                             |                                   |                                             |                                                 |      |                           |        |       
|Cash and cash equivalents, end of period       |                                                                             | $                                 | 1,147                                       |                                                 |      | $                         | 3,303  |       
|                                               |                                                                             |                                   |                                             |                                                 |      |                           |        |       

See accompanying independent certified public accountants review report and
notes to condensed consolidated financial statements.

4



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PowerCerv Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)(In thousands, except per share amounts)

A.    Basis of Presentation

The unaudited condensed consolidated balance sheet of PowerCerv
Corporation and its subsidiary (collectively, the Company or PowerCerv) as
of June 30, 2001, and the condensed consolidated statements of operations for
the three and six months ended June 30, 2001 and 2000 and the condensed
consolidated statements of cash flows for the six months ended June 30, 2001
and 2000 have been prepared by the Company, without audit. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows at June 30, 2001, and for all periods presented have been made. The
condensed consolidated balance sheet at December 31, 2000, has been derived
from the Companys audited consolidated financial statements at that date.

Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the Securities and
Exchange Commission (SEC) rules and regulations. However, management
believes that the disclosures contained herein are adequate to make the
information presented not misleading. These unaudited condensed consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended December
31, 2000, included in the Companys 2000 Annual Report on Form 10-K filed with
the SEC on April 17, 2001 (2000 Annual Report).

The results of operations for the three and six months ended June 30,
2001, are not necessarily indicative of results that may be expected for any
other interim period or for the full fiscal year.

In June 2001, the Company implemented a one-for-nine reverse stock split.
All share and per share amounts included herein give effect to the reverse
stock split.

On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 141, Business Combinations,
and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is effective for all
business combinations completed after June 30, 2001. SFAS 142 is effective for
the year beginning January 1, 2002; however certain provisions of that
Statement apply to goodwill and other intangible assets acquired between July
1, 2001, and the effective date of SFAS 142. The Company has not yet analyzed
the effect, if any, of these new standards; accordingly, the Company is unable
at present to state what effect, if any, the adoption of these standards will
have on the Companys financial statements.

B.    Revenue Recognition

License fees represent revenue from the licensing of the Companys open,
modifiable Integrated Enterprise Response Software Solutions with innovative
e-Commerce application products. License fees also include royalties earned on
the application products and related intellectual properties. Service fees
represent revenue from consulting services, education services and support and
maintenance services.

The Company recognizes revenue in accordance with the American Institute
of Certified Public Accountants Statement of Position 97-2, Software Revenue
Recognition(SOP 97-2), as amended by Statement of Position 98-4, Deferral of the Effective Date of a Provision
of SOP 97-2(SOP 98-4) and Statement of Position 98-9, Modification of SOP
97-2, Software Revenue Recognition, With Respect to Certain Transactions(SOP
98-9). Revenue is recognized from licenses of the Companys software

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PowerCerv Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)(In thousands, except per share amounts)

products
when the contract has been executed, the product(s) has been shipped,
collectibility is probable and the software license fees are fixed or
determinable. In the event that the contract provides for multiple elements
(e.g., software products, post-contract customer support, consulting services),
the total fee is allocated to these elements based on vendor-specific
objective evidence of fair value. If any portion of the license fees is
subject to forfeiture, refund or other contractual contingencies, the Company
will postpone revenue recognition until these contingencies have been removed.
Historically, product returns and allowances have been immaterial. The Company
generally accounts for consulting and education services separate from software
license fees for those multi-element arrangements where services are a separate
element and are not essential to the customers functionality requirements and
there is vendor-specific objective evidence of fair value for these services.
Consulting and education revenue is recognized as the services are performed.
Revenue from support and maintenance activities is recognized ratably over the
term of the maintenance period and the unrecognized portion is recorded as
deferred revenue.

C.    Earnings (Loss) Per Share Data

The following table sets forth the computation of basic and diluted
earnings (loss) per share (EPS) for the periods indicated:

|            |                                                                          |   |                    |       |                  |   |       |        |      |   |       |        |   |   |       |        |  
|----------- | ------------------------------------------------------------------------ | - | ------------------ | ----- | ---------------- | - | ----- | ------ | ---- | - | ----- | ------ | - | - | ----- | ------ | -
|            |                                                                          |   | Three Months Ended |       | Six Months Ended
|            |                                                                          |   | June 30,           |       | June 30,        
|            |                                                                          |   |                    |       |                 
|            |                                                                          |   | 2001               |       | 2000             |   | 2001  |        | 2000
|            |                                                                          |   |                    |       |                  |   |       |        |     
|Basic:      |                                                                          |   |                    |       |                  |   |       |        |      |   |       |        |   |   |       |       
|           
|           
|           
|           
|            | Net loss                                                                 |   | $                  | (783  | )                |   | $     | (3,134 | )    |   | $     | (2,004 | ) |   | $     | (7,035 | )
|            |                                                                          |   |                    |       |                  |   |       |        |      |   |       |        |   |   |       |       
|           
|           
|           
|           
|            | Average shares outstanding                                               |   |                    | 1,535 |                  |   |       | 1,535  |      |   |       | 1,535  |   |   |       | 1,526  |  
|            |                                                                          |   |                    |       |                  |   |       |        |      |   |       |        |   |   |       |       
|           
|           
|           
|           
|Basic EPS   |                                                                          | $ | (.51               | )     |                  | $ | (2.04 | )      |      | $ | (1.31 | )      |   | $ | (4.61 | )     
|            |                                                                          |   |                    |       |                  |   |       |        |      |   |       |        |   |   |       |       
|Diluted:    |                                                                          |   |                    |       |                  |   |       |        |      |   |       |        |   |   |       |       
|           
|           
|           
|           
|            | Net loss                                                                 |   | $                  | (783  | )                |   | $     | (3,134 | )    |   | $     | (2,004 | ) |   | $     | (7,035 | )
|            |                                                                          |   |                    |       |                  |   |       |        |      |   |       |        |   |   |       |       
|            | Average shares outstanding                                               |   |                    | 1,535 |                  |   |       | 1,535  |      |   |       | 1,535  |   |   |       | 1,526  |  
|           
|           
|           
|           
|            | Net effect of dilutive
stock options
based on the treasury stock method |   |                    |      |                  |   |       |       |      |   |       |       |   |   |       |       |  
|            |                                                                          |   |                    |       |                  |   |       |        |      |   |       |        |   |   |       |       
|           
|           
|           
|           
|            | Totals                                                                   |   |                    | 1,535 |                  |   |       | 1,535  |      |   |       | 1,535  |   |   |       | 1,526  |  
|            |                                                                          |   |                    |       |                  |   |       |        |      |   |       |        |   |   |       |       
|           
|           
|           
|           
|Diluted EPS |                                                                          | $ | (.51               | )     |                  | $ | (2.04 | )      |      | $ | (1.31 | )      |   | $ | (4.61 | )     
|            |                                                                          |   |                    |       |                  |   |       |        |      |   |       |        |   |   |       |       

Common stock equivalents in the three and six-month periods ended June 30,
2001 and June 30, 2000, were anti-dilutive due to the net losses sustained by
the Company during those periods. Therefore, the diluted net loss per share in
these periods is the same as the basic net loss per share.

The Company held its annual meeting of shareholders on June 1, 2001. At
this meeting, the shareholders approved an amendment to PowerCervs Articles of
Incorporation to effect a reverse stock split and authorized the Board of
Directors to make the final determination on the reverse stock split. The
Board of Directors at its June 1, 2001, meeting approved a 1-for-9 reverse
stock split effective June 4, 2001. As a result, the Companys average shares
outstanding decreased from 13,811 to 1,535 for the current period. Prior
periods have been adjusted to reflect the reverse stock split.

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##### Table of Contents



PowerCerv Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)(In thousands, except per share amounts)

D.    Commitments

The Company has entered into employment agreements with certain of its
executive officers. Information regarding these agreements is available in the
2000 Annual Report.

E.    Contingencies

A complaint was filed on July 24, 1997, in the United States District
Court for the Middle District of Florida, entitled J. Conrad Lifsey v. Harold
Ross, Gerald Wicker, Marc J. Fratello, Roy E. Crippen, III, Donald B. Hebb,
Jr., Thomas S. Roberts, PowerCerv Corporation, Alex Brown & Sons, Inc.,
Robertson, Stephens & Company, ABS Capital Partners, L.P., Summit Investors
III, L.P (collectively the Defendants). The complaint purports to be a class
action on behalf of those persons who purchased shares of the Companys common stock from March 1, 1996 (the date of the
Companys initial public offering of its common stock (IPO)) through July 24,
1996. The complaint alleges, among other things, that defendants violated the
Securities Act of 1933 as amended (the Securities Act) and the Securities
Exchange Act of 1934 (the Exchange Act) in connection with the Companys IPO
and in its subsequent securities filings, press releases and other public
statements. The plaintiffs sought damages of an unspecified amount, rescission
of certain securities sales and certain other remedies.

In January 2001, the district court granted the Defendants motion to
dismiss but provided the plaintiffs leave to file an amended complaint. Since
the date of the hearing, the plaintiffs filed an amended complaint and the
Defendants again filed a Motion to dismiss the amended pleading. In July 2001,
the parties to the litigation reached an agreement in principle for settlement
of the litigation. Subject to the district courts final approval, the
Defendants in the case (who deny any wrongdoing) are to pay an amount for the
creation of a settlement fund in exchange for which the plaintiffs will dismiss
the case with prejudice. The entire settlement amount is to be paid by the
Companys insurer. The parties are currently finalizing a memorandum of
understanding confirming the parties settlement agreement. The district court
entered an order on July 12, 2001, dismissing the case without prejudice
pursuant to Local Rule 3.08(b). Upon submission of the settlement papers to
the Court and upon preliminary approval by the Court, the class members will be
provided with notice and an opportunity to opt out of the settlement. After
the period for opt out lapses, the Court will hold a hearing for final approval
of the settlement.

The Company, in the normal course of business, is also subject to
miscellaneous other legal proceedings. The Company is defending these
proceedings and anticipates that it will be successful and/or able to resolve
these matters in a manner that will not materially affect the Companys
financial condition or results of operations.

F.    Income Taxes

As of June 30, 2001, the Company had a deferred tax asset of $13,016 that
is fully reserved.

During the first quarter of 2000, the Company recorded a charge related to
estimated federal and state income tax and interest totaling $359 resulting
from an Internal Revenue Service examination of the Companys 1996 and 1995
federal income tax returns. The amount allocated to tax expense is $209, and
$150 was allocated to interest expense. The Internal Revenue Service has
rendered an unfavorable
assessment resulting in the estimated exposure amount.
The Company has appealed this assessment, although there can be no assurances
of a successful outcome.

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##### Table of Contents



PowerCerv Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)(In thousands, except per share amounts)

G.    Segment Reporting

The Company has identified its operating segments as its services and license
product segments. In 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information. The services segment provides consulting, education,
support and maintenance services, and the license product segment provides
Integrated Enterprise Response Software Solutions
with innovative e-Commerce application products.

The following tables provide the various segment data:

|                                 |  |                                  |      |                                |  |             |       |       |  |         |      |          |  |             |       |       |  |   |        |   |  |   |       |  |  |   |        |   |  |   |        |  
|-------------------------------- |  | -------------------------------- | ---- | ------------------------------ |  | ----------- | ----- | ----- |  | ------- | ---- | -------- |  | ----------- | ----- | ----- |  | - | ------ | - |  | - | ----- |  |  | - | ------ | - |  | - | ------ | -
|                                 |  | Three Months Ended June 30, 2001 |      | Six Months Ended June 30, 2001
|                                 |  |                                  |      |                               
|                                 |  | License                          |      | Services                       |  | Unallocated |       | Total |  | License |      | Services |  | Unallocated |       | Total
|                                 |  |                                  |      |                                |  |             |       |       |  |         |      |          |  |             |       |      
|Revenues from external
customers |  | $                                | 633  |                                |  | $           | 1,170 |       |  |         |     |          |  | $           | 1,803 |       |  | $ | 1,086  |   |  | $ | 2,576 |  |  |   |       |   |  | $ | 3,662  |  
|                                
|                                
|                                
|                                
|Segment profit (loss)            |  | $                                | (389 | )                              |  | $           | 295   |       |  | $       | (689 | )        |  | $           | (783  | )     |  | $ | (1,167 | ) |  | $ | 608   |  |  | $ | (1,445 | ) |  | $ | (2,004 | )

|                                 |  |                                  |        |                                |  |             |       |       |  |         |        |          |  |             |        |       |  |   |        |   |  |   |       |  |  |   |        |   |  |   |        |  
|-------------------------------- |  | -------------------------------- | ------ | ------------------------------ |  | ----------- | ----- | ----- |  | ------- | ------ | -------- |  | ----------- | ------ | ----- |  | - | ------ | - |  | - | ----- |  |  | - | ------ | - |  | - | ------ | -
|                                 |  | Three Months Ended June 30, 2000 |        | Six Months Ended June 30, 2000
|                                 |  |                                  |        |                               
|                                 |  | License                          |        | Services                       |  | Unallocated |       | Total |  | License |        | Services |  | Unallocated |        | Total
|                                 |  |                                  |        |                                |  |             |       |       |  |         |        |          |  |             |        |      
|Revenues from external
customers |  | $                                | 1,208  |                                |  | $           | 2,117 |       |  |         |       |          |  | $           | 3,325  |       |  | $ | 1,527  |   |  | $ | 4,304 |  |  |   |       |   |  | $ | 5,831  |  
|                                
|                                
|                                
|                                
|Segment profit (loss)            |  | $                                | (1,712 | )                              |  | $           | 421   |       |  | $       | (1,843 | )        |  | $           | (3,134 | )     |  | $ | (4,506 | ) |  | $ | 914   |  |  | $ | (3,443 | ) |  | $ | (7,035 | )

There were no transactions between segments. The unallocated amounts are
made up of the following items:

|                                         |  |               |      |               |  |               |        |               |  |   |        |   |  |   |        |  
|---------------------------------------- |  | ------------- | ---- | ------------- |  | ------------- | ------ | ------------- |  | - | ------ | - |  | - | ------ | -
|                                         |  | Three         |      | Six           |  | Three         |        | Six          
|                                         |  | Months Ended  |      | Months Ended  |  | Months Ended  |        | Months Ended 
|                                         |  | June 30, 2001 |      | June 30, 2001 |  | June 30, 2000 |        | June 30, 2000
|                                         |  |               |      |               |  |               |        |              
|General and administrative costs         |  | $             | (683 | )             |  | $             | (1,293 | )             |  | $ | (1,150 | ) |  | $ | (2,411 | )
|                                        
|                                        
|                                        
|                                        
|Work force reduction                     |  |               | (24  | )             |  |               | (193   | )             |  |   | (711   | ) |  |   | (711   | )
|                                        
|                                        
|                                        
|                                        
|Interest and other income (expense), net |  |               | 18   |               |  |               | 51     |               |  |   | 18     |   |  |   | (73    | )
|                                        
|                                        
|                                        
|                                        
|Income tax expense                       |  |               |     |               |  |               | (10    | )             |  |   |       |   |  |   |       |  
|                                         |  |               |      |               |  |               |        |               |  |   |        |   |  |   |        |  
|                                         |  | $             | (689 | )             |  | $             | (1,445 | )             |  | $ | (1,843 | ) |  | $ | (3,443 | )

The Company does not use assets as a measure of the segments performance, thus
no assets are disclosed by segment in the tables above.

H.    Work Force Reduction and Other

During the first quarter of 2001, the Company announced and completed a
work force reduction in line with its objective to streamline overall
operations and improve financial condition. The Company recorded a
restructuring charge of $169 related to severance costs for approximately 30
employees (1
senior-level staff and 29 non senior-level employees primarily in
research and development and services). As of June 30, 2001, approximately $33
remains in accrued liabilities for severance payments.

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##### Table of Contents



PowerCerv Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)(In thousands, except per share amounts)

During the second quarter of 2001, the Company implemented a minor
workforce reduction resulting in the elimination of approximately nine
positions throughout the Company. The Company recorded a restructuring charge
of $24 related to severance costs associated with the terminations. As of June
30, 2001, these costs have been substantially paid.

During the second quarter of 2000, the Company initiated actions to reduce
its work force and undertook cost cutting measures. The Company recorded a
restructuring charge related to a work force reduction and other expenses
totaling $873 of which $711 was recorded in the second quarter and $162 was
recorded in the third quarter. The total restructuring charge includes
severance and related costs of $649 (4 senior-level staff and 35 non
senior-level employees primarily in sales, services and research and
development) and costs of $224 related to office closings. As of June 30,
2001, approximately $241 remains in accrued liabilities in connection with the
2000 restructuring including $209 of severance cost. As part of the
restructuring plan, the Companys Chairman assumed the role of Chief Executive
Officer, and the previous Chief Executive Officer is no longer with the
Company. Office closings were completed during the third quarter of 2000.

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PowerCerv Corporation

Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations(dollars in thousands)

The Company is focused on delivering open, modifiable Integrated
Enterprise Response Software Solutions with innovative e-Commerce capabilities
to mid-size U.S. companies with annual revenues up to $750 million. The Company
has focused its resources, including product development, marketing and sales
efforts, on the needs and requirements of companies in this market. The
Companys revenues currently consist primarily of software license fees and
fees for services relating to the Companys applications, including consulting,
education and maintenance and support.

The Company was organized in April 1992, and through calendar year 1994 a
substantial part of the Companys revenue was derived from technology resales
and consulting and education services. The Company began selling its own
license product in the fourth quarter of 1993. Since then, the Company has
brought several additional applications to the market. Service fees remain the
Companys largest single revenue source, although the Companys strategy is to
seek to increase revenue generated from licensing its application products. On
March 31, 1999, the Company sold its general consulting and general education
business (consulting and education services other than its application-related
services) to a related party. It also finalized a strategy developed in 1998
to discontinue resales of various third-party software products.

License fees represent revenue from licensing the Companys open,
modifiable Integrated Enterprise Response Software Solutions with innovative
e-Commerce application products and royalties earned on the Companys
application products and related intellectual properties. Service fees
represent revenue from implementing the Companys application products,
consulting services, education services and maintenance and support services.

Beginning January 1, 1998, the Company has recognized revenue in
accordance with the American Institute of Certified Public Accountants
(AICPA) Statement of Position 97-2, Software Revenue Recognition (SOP
97-2), as amended by Statement of Position 98-4 (SOP 98-4), Deferral of the
Effective Date of a Provision of SOP 97-2.Revenue is recognized from licenses
of the Companys

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PowerCerv Corporation

Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations(dollars in thousands)

software products when the contract has been executed, the
product(s) has been shipped, collectibility is probable and the software
license fees are fixed or determinable. In the event that the contract
provides for multiple elements (e.g., software products, post-contract customer
support, consulting services), the total fee is allocated to these elements
based on vendor-specific objective evidence of fair value. If any portion of
the license fee is subject to forfeiture, refund or other contractual
contingencies, the Company will postpone revenue recognition until these
contingencies have been removed. Historically, product returns and allowances
have been immaterial. The Company generally accounts for consulting and
education services separate from software license fees for those multi-element
arrangements where services are a separate element and are not essential to the
customers functionality requirements and there is vendor-specific objective
evidence of fair value for these services. Consulting and education revenue
is recognized as the services are performed. Revenue from support and
maintenance activities is recognized ratably over the term of the maintenance
period and the unrecognized portion is recorded as deferred revenue. Prior to
January 1, 1998, the Company recognized revenue in accordance with the American
Institute of Certified Public Accountants Statement of Position 91-1, Software
Revenue Recognition.

On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 141, Business Combinations,
and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is effective for all
business combinations completed after June 30, 2001. SFAS 142 is
effective for the year beginning January 1, 2002; however
certain provisions of that Statement apply to goodwill and other intangible
assets acquired between July 1, 2001, and the effective date of SFAS 142. The
Company has not yet analyzed the effect, if any, of these new standards;
accordingly, the Company is unable at present to state what effect, if any, the
adoption of these standards will have on the Companys financial statements.

This Quarterly Report on Form 10-Q contains forward-looking statements
that have been made pursuant to the provisions of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are based on
current expectations, estimates and projections about the Companys industry,
managements beliefs and certain assumptions made by the Companys management.
Words such as anticipates, expects, intends, plans, believes,
seeks, estimates, may, will, to, could, would, or continue and
variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and are subject to certain risks, uncertainties and assumptions
that are difficult to predict; therefore, actual results may differ materially
from those expressed or forecasted in any such forward-looking statements.
PowerCerv is subject to the risks detailed herein or detailed from time to time
in PowerCervs filings with the Securities and Exchange Commission.

Results of Operations

The following table sets forth, for the periods indicated, certain financial
data regarding the Companys revenues derived from license fees and service
fees:

|                             |  |                             |       |                           |  |      |     |      |  |        |       |      |  |   |       |   |  |  |     |    |  |   |       |  
|---------------------------- |  | --------------------------- | ----- | ------------------------- |  | ---- | --- | ---- |  | ------ | ----- | ---- |  | - | ----- | - |  |  | --- | -- |  | - | ----- | -
|Revenues                     |  | Three months ended June 30, |       | Six months ended June 30,
|                             |  |                             |       |                          
|                             |  | 2001                        |       | Change                    |  | 2000 |     | 2001 |  | Change |       | 2000
|                             |  |                             |       |                          
|License fees                 |  | $                           | 633   |                           |  |      | (48 | %)   |  | $      | 1,208 |      |  | $ | 1,086 |   |  |  | (29 | %) |  | $ | 1,527 |  
|                            
|                            
|                            
|                            
|Percentage of total revenues |  |                             | 35    | %                         |  |      |     |      |  |        | 36    | %    |  |   | 30    | % |  |  |     |    |  |   | 26    | %
|                             |  |                             |       |                          
|Service fees                 |  |                             | 1,170 |                           |  |      | (45 | %)   |  |        | 2,117 |      |  |   | 2,576 |   |  |  | (40 | %) |  |   | 4,304 |  
|                            
|                            
|                            
|                            
|Percentage of total revenues |  |                             | 65    | %                         |  |      |     |      |  |        | 64    | %    |  |   | 70    | % |  |  |     |    |  |   | 74    | %
|                             |  |                             |       |                          

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##### Table of Contents



PowerCerv Corporation

Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations(dollars in thousands)

License fees.The Companys license fees are derived from licensing the
Companys application products. In addition, any royalty fees earned are
included in license fees. The Company establishes its licensing fees using a
tiered pricing approach based on the number of concurrent servers and users.
Source code licenses are available at an additional cost.

License fees decreased for the three and six-month periods ended June 30,
2001, compared to the same periods in 2000. The decrease was due to fewer
license deals closed in the second quarter of the current year. Although the
Company believes there will be growth in its license revenue, there can be no
assurance that the Companys license revenues will increase in accordance with
managements expectations, if at all.

Service fees. The Companys service fees consist of revenue from
consulting, education and support and maintenance services for the Companys
application software licenses. Consulting services are primarily provided on a
time and materials basis, education services are generally priced on a
per-student basis and annual support and maintenance are based on a percentage
of related license fees. Management believes that the decrease in service revenue resulted from
fewer new license deals closed in previous quarters. Generally, to the extent
that revenue from licensing its application products increases, the Company
believes the demand for application consulting services (and related revenue)
over subsequent quarters will likely increase; however, there can be no
assurance that license revenue will increase or that if it does increase,
revenue from service fees will increase correspondingly.

Costs and Expenses

The following table sets forth, for the periods indicated, certain financial
data regarding the Companys costs associated with its license fees and
services:

|                        |  |                             |     |                           |  |      |     |      |  |        |       |      |  |   |       |   |  |  |     |    |  |   |       |  
|----------------------- |  | --------------------------- | --- | ------------------------- |  | ---- | --- | ---- |  | ------ | ----- | ---- |  | - | ----- | - |  |  | --- | -- |  | - | ----- | -
|Cost of Revenues:       |  | Three months ended June 30, |     | Six months ended June 30,
|                        |  |                             |     |                          
|                        |  | 2001                        |     | Change                    |  | 2000 |     | 2001 |  | Change |       | 2000
|                        |  |                             |     |                          
|Cost of licenses        |  | $                           | 79  |                           |  |      | (22 | %)   |  | $      | 101   |      |  | $ | 157   |   |  |  | (34 | %) |  | $ | 239   |  
|                       
|                       
|                       
|                       
|Gross profit percentage |  |                             | 88  | %                         |  |      |     |      |  |        | 92    | %    |  |   | 86    | % |  |  |     |    |  |   | 84    | %
|                        |  |                             |     |                          
|Cost of services        |  |                             | 875 |                           |  |      | (48 | %)   |  |        | 1,696 |      |  |   | 1,968 |   |  |  | (42 | %) |  |   | 3,390 |  
|                       
|                       
|                       
|                       
|Gross profit percentage |  |                             | 25  | %                         |  |      |     |      |  |        | 20    | %    |  |   | 24    | % |  |  |     |    |  |   | 21    | %
|                        |  |                             |     |                          

Cost of licenses. The cost of licenses consists primarily of production costs,
royalties associated with certain modules of the Companys application products
and the amortization of intangible assets. The cost of licenses for the three
and six-month periods ended June 30, 2001 decreased 22% and 34%, respectively
compared to 2000 primarily resulting from fewer third party fees on licenses
sold offset by higher amortization expense.

Cost of services.The cost of services consists primarily of compensation
and travel costs associated with providing consulting, product support and
maintenance, technical services and education.

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PowerCerv Corporation

Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations(dollars in thousands)

The cost of services decreased
48% and 42% for the three and six-month periods ended June 30, 2001,
respectively, compared to 2000 primarily due to a lower compensation expense
and operating costs for the periods. In addition to the 2000 workforce
reduction, the Companys January 2001 work force reduction resulted in the
elimination of approximately seven service positions. The Company expects to
realize gross annual savings of approximately $600 as a result of these
terminations. A minor work force reduction was also implemented in the second
quarter of 2001 resulting in the termination of two additional service
positions. The Company believes that these reductions have resulted in lower
expenses and increased utilization of remaining service personnel; however,
there can be no assurance that the Company will return to profitability as a
result of these actions.

The following table sets forth, for the periods indicated, certain
financial data regarding the Companys operating expenses:

|                             |  |                             |     |                           |  |      |     |      |  |        |       |      |  |   |       |   |  |  |     |    |  |   |       |  
|---------------------------- |  | --------------------------- | --- | ------------------------- |  | ---- | --- | ---- |  | ------ | ----- | ---- |  | - | ----- | - |  |  | --- | -- |  | - | ----- | -
|Operating Expenses:          |  | Three months ended June 30, |     | Six months ended June 30,
|                             |  |                             |     |                          
|                             |  | 2001                        |     | Change                    |  | 2000 |     | 2001 |  | Change |       | 2000
|                             |  |                             |     |                          
|General and administrative   |  | $                           | 683 |                           |  |      | (41 | %)   |  | $      | 1,150 |      |  | $ | 1,293 |   |  |  | (46 | %) |  | $ | 2,411 |  
|                            
|                            
|                            
|                            
|Percentage of total revenues |  |                             | 38  | %                         |  |      |     |      |  |        | 35    | %    |  |   | 35    | % |  |  |     |    |  |   | 41    | %
|                             |  |                             |     |                          
|Sales and marketing          |  |                             | 450 |                           |  |      | (73 | %)   |  |        | 1,692 |      |  |   | 1,005 |   |  |  | (71 | %) |  |   | 3,447 |  
|                            
|                            
|                            
|                            
|Percentage of total revenues |  |                             | 25  | %                         |  |      |     |      |  |        | 51    | %    |  |   | 27    | % |  |  |     |    |  |   | 59    | %
|                             |  |                             |     |                          
|Research and development     |  |                             | 493 |                           |  |      | (56 | %)   |  |        | 1,127 |      |  |   | 1,091 |   |  |  | (54 | %) |  |   | 2,347 |  
|                            
|                            
|                            
|                            
|Percentage of total revenues |  |                             | 27  | %                         |  |      |     |      |  |        | 34    | %    |  |   | 30    | % |  |  |     |    |  |   | 40    | %
|                             |  |                             |     |                          

General and administrative (G&A).G&A expenses include general
compensation, communications, accounting, human resources, legal and related
facilities expenses. The decrease in G&A expenses for the three and six-month
periods ended June 30, 2001, compared to 2000, primarily resulted from lower
compensation, bad debt and other operating costs. The Company believes that
cost cutting measures have resulted in lower expenses and increased utilization
of remaining G&A personnel; however, there can be no assurance that the Company
will return to profitability as a result of these actions.

Sales and marketing.Sales and marketing expenses primarily consist of
compensation paid to sales and marketing personnel; costs of marketing,
including direct mail and telemarketing activities; costs of public relations,
including trade shows and conferences; and related communications costs. Sales
and marketing costs decreased 73% and 71% for the three and six-month periods
ended June 30, 2001, respectively, as compared to the same periods in 2000
primarily as a result of lower compensation in the current periods. The sales
and marketing expense as a percentage of total revenue decreased due to
substantial cost cutting measures implemented by the Company in 2000 and 2001.
The Companys January 2001 work force reduction resulted in the elimination of
approximately four sales and marketing positions. The Company expects to
realize gross annual savings of approximately $220 as a result of these
terminations. A minor work force reduction was also implemented in the second
quarter of 2001 resulting in the elimination of three additional sales and
marketing positions. Further, certain non-critical costs were discontinued or
deferred until revenue increases to adequate levels. The Company believes that
these reductions have resulted in lower expenses and increased utilization of
remaining sales and marketing personnel; however, there can be no assurance
that the Company will return to profitability or that there will not be any
negative impact as a result of these actions.

13



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##### Table of Contents



PowerCerv Corporation

Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations(dollars in thousands)

Research and development (R&D).R&D costs consist primarily of
compensation and related facilities, software and equipment costs associated
with developing, maintaining and enhancing the Companys products.
Historically, the Company has not capitalized any internal R&D costs as the
costs incurred during the period between the point in time that technological
feasibility is established and that a product is released to the market have
been insignificant. R&D costs decreased 56% and 54% for the three and six-month
periods ended June 30, 2001, as compared to the same periods in 2000, primarily
due to decreased personnel costs. R&D cost as a percentage of total revenue
decreased due to substantial cost cutting measures implemented by the Company
in 2000 and 2001. The Companys January 2001 work force reduction resulted in
the elimination of approximately 17 R&D positions. The Company expects to
realize gross annual savings of approximately $1.3 million as a result of these
terminations. A minor work force reduction was also implemented in the second
quarter of 2001 resulting in the elimination of two additional R & D positions.
The Company believes that these reductions have resulted in lower expenses
and increased utilization of remaining R&D personnel; however, there can be no
assurance that the Company will return to profitability or that there will not
be any negative impact as a result of these actions.

Work force reduction and other.

During the first quarter of 2001, the Company announced and completed a
work force reduction in line with its objective to streamline operations and
improve financial condition. The Company recorded a restructuring charge of
$169 related to severance costs for approximately 30 employees (1 senior-level
staff and 29 non senior-level employees primarily in research and development
and services). As of June 30, 2001, approximately $33 remains in accrued
liabilities for severance payments in connection with the restructuring.

During the second quarter of 2001, the Company implemented a minor
workforce reduction resulting in the elimination of approximately nine
positions throughout the Company. The Company recorded a restructuring charge
of $24 related to severance costs associated with the terminations. As of June
30, 2001, these costs have been substantially paid.

During the second quarter of 2000, the Company initiated actions to reduce
its work force and undertook cost cutting measures. The Company recorded a
restructuring charge related to a work force reduction and other expenses
totaling $873 of which $711 was recorded in the second quarter and $162 was
recorded in the third quarter. The total restructuring charge includes
severance and related costs of $649 (4 senior-level staff and 35 non
senior-level employees primarily in sales, services and research and
development) and costs of $224 related to office closings. As of June 30,
2001, approximately $241 remains in accrued liabilities including $209 of
severance cost. As part of the restructuring plan, the Companys Chairman has
assumed the role of Chief Executive Officer, and the previous Chief Executive
Officer is no longer with the Company. Office closings were completed during
the third quarter of 2000.

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##### Table of Contents



PowerCerv Corporation

Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations(dollars in thousands)

The Company believes that these reductions have resulted in lower expenses
and increased utilization of its remaining personnel; however, there can be no
assurance that the Company will return to profitability as a result of these
actions.

Income taxes.

As of June 30, 2001, the Company had a deferred tax asset of $13,016 that
is fully reserved.

During the first quarter of 2000, the Company recorded a charge related to
estimated federal and state income tax and interest totaling $359 resulting
from an Internal Revenue Service examination of the Companys 1996 and 1995
federal income tax returns. The amount allocated to tax expense is $209, and
$150 was allocated to interest expense. The Internal Revenue Service has
rendered an unfavorable assessment resulting in the estimated exposure amount.
The Company has appealed this assessment, although there can be no assurances
of a successful outcome.

Liquidity and Capital Resources

The following tables set forth, for the periods indicated, certain
financial data regarding the periods indicated, certain financial data
regarding the Companys working capital balances, cash and cash equivalents,
cash used in operating activities, cash provided by investing activities and
cash provided by financing activities:

|                          |  |               |       |        |  |                   |     |    |  |   |       | 
|------------------------- |  | ------------- | ----- | ------ |  | ----------------- | --- | -- |  | - | ----- | 
|                          |  | As of        
|                          |  |              
|                          |  | June 30, 2001 |       | Change |  | December 31, 2000
|                          |  |               |       |        |  |                  
|Working capital           |  | $             | 116   |        |  |                   | (93 | %) |  | $ | 1,625 | 
|                         
|                         
|                         
|                         
|Cash and cash equivalents |  | $             | 1,147 |        |  |                   | (46 | %) |  | $ | 2,136 | 

Working capital and cash and cash equivalents decreased as of June 30,
2001, compared to December 31, 2000, due to significantly reduced revenues
resulting in lower cash and accounts receivable balances and operating losses
for the year.

|                                            |  |                           |         |        |  |      |      |    |  |  |         |  
|------------------------------------------- |  | ------------------------- | ------- | ------ |  | ---- | ---- | -- |  |  | ------- | -
|                                            |  | For the                  
|                                            |  | Six months ended June 30,
|                                            |  |                          
|                                            |  | 2001                      |         | Change |  | 2000
|                                            |  |                           |         |        |  |     
|Cash flows used in operating activities     |  |                           | ($1,088 | )      |  |      | 73   | %  |  |  | ($4,010 | )
|                                           
|                                           
|                                           
|                                           
|Cash flows provided by investing
activities |  |                           | 99      |        |  |      | (55  | %) |  |  | 218     |  
|                                           
|                                           
|                                           
|                                           
|Cash flows provided by financing
activities |  |                           |        |        |  |      | (100 | %) |  |  | 871     |  

For the six-month period ended June 30, 2001, cash used by operating
activities totaled $1,088, due principally to lower than anticipated revenues
and resulting losses for the quarter.

15



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##### Table of Contents



PowerCerv Corporation

Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations(dollars in thousands)

The Companys cash provided by investing activities totaled $99 for the
six-month period ended June 30, 2001, principally due to payments received on
notes receivable ($114) offset by purchases of fixed assets ($15). The cash
used in investing activities for the six-month period ended June 30, 2000, was
principally due to the proceeds from a return of the Companys investment in a
third party ($500), offset by purchases of software and fixed assets ($282).

At June 30, 2001, the Companys primary source of liquidity consisted of
its cash and cash equivalents balance of $1,147 and its short-term accounts
receivable balance of $2,063. The Company is currently seeking other sources of
debt or equity financing. There can be no assurances that such funds will be
available to the Company or, if available, would be on terms satisfactory to
the Company.

As previously disclosed in the Companys prior filings with the SEC, the
Company has been notified by the Nasdaq Stock Market, Inc. (Nasdaq) that the
Company has failed to comply with the
continued listing requirements of the Nasdaq National Market. The Company has
subsequently been moved to the Nasdaq SmallCap Market.

Nasdaq has given the Company until August 15, 2001, to comply with the
continued listing requirements of the Nasdaq SmallCap Market, in particular the
requirement to maintain a minimum net worth of $2 million. If the Company does
not comply with the continued listing requirements, the Companys common stock
will likely trade in the over-the-counter market on the OTC Electronic Bulletin
Board or through the pink sheets. In such event and as previously disclosed
in the Companys filings with the SEC, the Companys shareholders will find it
more difficult to obtain a price quotation for or sell the Companys common
stock. The delisting of the Companys common stock from the Nasdaq SmallCap
Market therefore may have an adverse impact on the market price and liquidity
of the Companys common stock.

To achieve compliance with such requirement, the Company currently is
negotiating with certain investors to purchase up to $1.6 million of the
Companys securities. The terms of such purchase are currently being finalized
and there can be no assurances that the company will be able to consummate any
such transaction.

If the Company is not successful in achieving targeted license and service
revenues, the Company may be required to take further actions to align its
operating expenses with its revenues, such as further reductions in work force
or other cost cutting measures. The Company is dependent upon its ability to
generate cash flows from its license and service fees, as well as the
collection of its outstanding accounts receivable, to maintain its current
liquidity levels.

PowerCerv recognized that revenue for the Company was not going to rapidly
return to the levels previously achieved. As a result, management has taken
steps to streamline operations and improve the financial condition of the
Company. These steps include restructuring initiatives that commenced in 2000
as well as strategies and actions already taken or planned for 2001, including
workforce reductions that were implemented in the first and second quarters of
2001. Additionally, management has reduced or deferred certain wages for
senior executives. Furthermore, management will use best efforts to eliminate
costs that have been evaluated as non-critical to the success of the Companys
core strategies.

If the Companys existing cash reserves and restructuring decisions prove
insufficient to fund its future cash requirements and the Company is not able
to obtain other sources of funds, the Companys ability to pursue its business
strategy beyond the year 2001 could be materially adversely effected. However,
as a result of the Companys restructuring decisions, the amount of cash used
in operations decreased substantially in the first half of 2001 as compared to
the previous year. As more fully discussed above, the Company has implemented,
or is in the process of initiating, cost cutting measures and other actions
that management currently believes will provide adequate working capital for at
least twelve months. However, there can be no assurance that the Company will
return to profitability as a result of these actions nor that further actions
will not be necessary in 2001.

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##### Table of Contents






PowerCerv Corporation

Item 3.  Quantitative and Qualitative Disclosure
About Market Risk

The Company had no holdings of derivative financial or commodity instruments at
June 30, 2001. The Company has no significant exposure to interest rate or
foreign currency exchange rate risks. An increase in interest rates of 100
basis points would not significantly impact the Companys net income.
Generally, all of the Companys business is transacted in U.S. dollars.
Accordingly, foreign exchange rate fluctuations should not have a significant
impact on the Company.

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##### Table of Contents



INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS REVIEW REPORT

The Board of Directors
PowerCerv Corporation

We have reviewed the accompanying condensed consolidated balance sheet of
PowerCerv Corporation as of June 30, 2001, and the related condensed
consolidated statements of operations for the three and six-month periods then
ended and the condensed consolidated statements of cash flows for the three and
six-month periods then ended. These financial statements are the
responsibility of the Companys management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with auditing standards generally accepted in the United States
of America, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express such
an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements
referred to above for them to be in conformity with accounting principles
generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet as of
December 31, 2000, and the related consolidated statement of operations,
stockholders equity, and cash flows for the year then ended (not presented
herein) and in our report dated January 23, 2001, except for Note 3 as to which
the date is April 13, 2001, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth
in the accompanying condensed consolidated balance sheet as of December 31,
2000, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.

/s/ Grant Thornton, LLP

Tampa, Florida
July 20, 2001

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##### Table of Contents






PowerCerv Corporation

Part II.  Other Information




Item 1.  Legal Proceedings

A complaint was filed on July 24, 1997, in the United States District
Court for the Middle District of Florida, entitled J. Conrad Lifsey v. Harold
Ross, Gerald Wicker, Marc J. Fratello, Roy E. Crippen, III, Donald B. Hebb,
Jr., Thomas S. Roberts, PowerCerv Corporation, Alex Brown & Sons, Inc.,
Robertson, Stephens & Company, ABS Capital Partners, L.P., Summit Investors
III, L.P (collectively the Defendants). The complaint purports to be a class
action on behalf of those persons who purchased shares of the Companys common
stock from March 1, 1996 (the date of the Companys initial public offering of
its common stock (IPO)) through July 24, 1996. The complaint alleges, among
other things, that defendants violated the Securities Act of 1933 as amended
(the Securities Act) and the Securities Exchange Act of 1934 (the Exchange
Act) in connection with the Companys IPO and in its subsequent securities
filings, press releases and other public statements. The plaintiffs sought
damages of an unspecified amount, rescission of certain securities sales and
certain other remedies.

In January 2001, the district court granted the Defendants motion to
dismiss but provided the plaintiffs leave to file an amended complaint. Since
the date of the hearing, the plaintiffs filed an amended complaint and the
Defendants again filed a Motion to dismiss the amended pleading. In July 2001,
the parties to the litigation reached an agreement in principle for settlement
of the litigation. Subject to the district courts final approval, the
Defendants in the case (who deny any wrongdoing) are to pay an amount for the
creation of a settlement fund in exchange for which the plaintiffs will dismiss
the case with prejudice. The entire settlement amount is to be paid by the
Companys insurer. The parties are currently finalizing a memorandum of
understanding confirming the parties settlement agreement. The district court
entered an order on July 12, 2001, dismissing the case without prejudice
pursuant to Local Rule 3.08(b). Upon submission of the settlement papers to
the Court and upon preliminary approval by the Court, the class members will be
provided with notice and an opportunity to opt out of the settlement. After
the period for opt out lapses, the Court will hold a hearing for final approval
of the settlement.

The Company, in the normal course of business, is also subject to
miscellaneous other legal proceedings. The Company is defending these
proceedings and anticipates that it will be successful and/or able to resolve
these matters in a manner that will not materially affect the Companys
financial condition or results of operations.




Item 4.  Submission of Matters to a Vote of Security Holders

The Company held its Annual Meeting of Shareholders on June 1, 2001 (2001
Annual Meeting). At the 2001 Annual Meeting, the shareholders voted to elect
Marc J. Fratello, Roy E. Crippen, III, O.G. Greene, Robert H. Davies and Shawn
Severson as directors of the Company, to hold office until the Companys 2002
Annual Meeting and until their successors are elected and qualified or earlier
resignation, removal from office or death. The shareholders also voted to
ratify the appointment of the Companys independent auditor, Grant Thornton
LLP, for the year ending December 31, 2001. The shareholders also voted on an
amendment to PowerCervs Articles of Incorporation to effect a stock
combination (reverse stock split).

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##### Table of Contents



PowerCerv Corporation

Part II.  Other Information

The total number of shares of the Companys common stock, $.001 par value
(Common Stock), issued, outstanding and entitled to vote at the 2001 Annual
Meeting was 13,811,210 shares, of which 13,047,400 shares of Common Stock were
present in person or by proxy. The following list indicates the number of
votes received by each of the nominees for the Companys Board of Directors:

|                    |  |           |            |          |  |  |         | 
|------------------- |  | --------- | ---------- | -------- |  |  | ------- | 
|Name                |  | Votes For |            | Withheld
|                    |  |           |            |         
|Marc J. Fratello    |  |           | 12,934,815 |          |  |  | 112,585 | 
|                   
|                   
|                   
|                   
|Roy E. Crippen, III |  |           | 12,936,141 |          |  |  | 111,259 | 
|                   
|                   
|                   
|                   
|Robert H. Davies    |  |           | 12,936,603 |          |  |  | 110,797 | 
|                   
|                   
|                   
|                   
|O.G. Greene         |  |           | 12,936,741 |          |  |  | 110,659 | 
|                   
|                   
|                   
|                   
|Shawn Severson      |  |           | 12,935,403 |          |  |  | 111,997 | 

The appointment of Grant Thornton LLP as the Companys independent
auditors was approved by a majority of the shareholders present and entitled to
vote at the 2001 Annual Shareholders Meeting. Specifically, of the 13,047,400
shares of Common Stock present in person or by proxy, a total of 12,936,650
voted in favor of this proposal, 93,625 shares of Common Stock voted against,
and 17,125 shares of Common Stock abstained from voting.

The shareholders approved an amendment to PowerCervs Articles of
Incorporation to effect a stock combination (reverse stock split). The
following list indicates the number of votes received by each reverse stock
split combination:

|              |  |           |            |               |  |             |         |  |  |  |        | 
|------------- |  | --------- | ---------- | ------------- |  | ----------- | ------- |  |  |  | ------ | 
|Reverse Split |  | Votes For |            | Votes Against |  | Abstentions
|              |  |           |            |               |  |            
|1-for-3       |  |           | 12,749,330 |               |  |             | 214,240 |  |  |  | 83,830 | 
|             
|             
|             
|             
|1-for-4       |  |           | 12,766,925 |               |  |             | 224,115 |  |  |  | 56,360 | 
|             
|             
|             
|             
|1-for-5       |  |           | 12,747,909 |               |  |             | 217,861 |  |  |  | 81,630 | 
|             
|             
|             
|             
|1-for-6       |  |           | 12,728,030 |               |  |             | 234,840 |  |  |  | 84,530 | 
|             
|             
|             
|             
|1-for-7       |  |           | 12,744,500 |               |  |             | 217,840 |  |  |  | 85,060 | 
|             
|             
|             
|             
|1-for-8       |  |           | 12,726,900 |               |  |             | 234,240 |  |  |  | 86,260 | 
|             
|             
|             
|             
|1-for-9       |  |           | 12,766,213 |               |  |             | 231,427 |  |  |  | 49,760 | 

The shareholders approved the Board of Directors to make the final
determination on the reverse stock split combination from those approved
amendments. The Board of Directors at its June 1, 2001, meeting approved a
one-for-nine reverse stock split effective June 4, 2001.




Item 6. Exhibits and Reports on Form 8-K



|(a) |  | Exhibits                                                                   
|--- |  | ---------------------------------------------------------------------------
|   
|    |  | 15.1 Accountants Letter regarding Unaudited Interim Financial Information.
|   
|(b) |  | Reports on Form 8-K                                                        

None

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PowerCerv Corporation

Form 10-Q

(for the quarterly period ended June 30, 2001)




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.

|                      |  |                                                                                                                              |  |                      
|--------------------- |  | ---------------------------------------------------------------------------------------------------------------------------- |  | ---------------------
|                      |  |                                                                                                                              |  | PowerCerv Corporation
|                     
|                      |  |                                                                                                                              |  |                      
|                     
|Date: August 14, 2001 |  | /s/ Marc J. FratelloMarc J. Fratello,
President, Chief Executive Officer and
Chairman of the Board
(Duly Authorized Officer)
|                     
|                      |  |                                                                                                                              |  |                      
|                     
|Date: August 14, 2001 |  | /s/  Lawrence J. AlvesLawrence J. Alves,
Chief Financial Officer, Treasurer
(Principal Financial Officer)                   

21