##### 



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



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FORM 10-QSB

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

For the quarterly period ended March 31, 2002

OR

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

For the transition period from ____________ to ______________



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Commission File Number 0-27574

PowerCerv Corporation(Name of small business issuer as specified in its charter)

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

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

(813) 226-2600
(Issuer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
ü     No _____

As of May 10, 2002, there were 1,313,000 shares of the registrants common
stock, $.001 par value, outstanding.



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PowerCerv Corporation
Form 10-QSB

Index

|                                                                   |                                                                                                                |  |      |   | 
|------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------- |  | ---- | - | 
|                                                                   |                                                                                                                |  | Page
|                                                                   |                                                                                                                |  |     
|Part I. Financial Information                                      |                                                                                                                |  |      |  
|                                                                  
|Item 1. Financial Statements                                       |                                                                                                                |  |      |  
|                                                                  
|                                                                   | Condensed Consolidated Balance Sheets as of March 31, 2002 (unaudited)
and December 31, 2001                   |  |      | 2 | 
|                                                                  
|                                                                   | Condensed Consolidated Statements of Operations for the Three Months Ended
March 31, 2002 and 2001 (unaudited) |  |      | 3 | 
|                                                                  
|                                                                   | Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2002 and 2001 (unaudited) |  |      | 4 | 
|                                                                  
|                                                                   | Notes to Condensed Consolidated Financial Statements (unaudited)                                               |  |      | 5 | 
|                                                                  
|Item 2. Managements Discussion and Analysis or Plan of Operations |                                                                                                                |  | 10   |  
|                                                                  
|Part II. Other Information                                         |                                                                                                                |  |      |  
|                                                                  
|Item 1. Legal Proceedings                                          |                                                                                                                |  | 16   |  
|                                                                  
|Signatures                                                         |                                                                                                                |  | 17   |  

1



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##### 



Part I.   FINANCIAL INFORMATION

Item 1.   Financial
Statements

PowerCerv Corporation

Condensed Consolidated Balance Sheets(In thousands)

|                                               |                                                                          |                                                      |     |             |       |              |     |       |       | 
|---------------------------------------------- | ------------------------------------------------------------------------ | ---------------------------------------------------- | --- | ----------- | ----- | ------------ | --- | ----- | ----- | 
|                                               |                                                                          |                                                      |     | March 31,   |       | December 31,
|                                               |                                                                          |                                                      |     | 2002        |       | 2001        
|                                               |                                                                          |                                                      |     |             |       |             
|                                               |                                                                          |                                                      |     | (unaudited) |       |              |     |      
|Assets                                         |                                                                          |                                                      |     |             |       |              |     |      
|Current assets:                                |                                                                          |                                                      |     |             |       |              |     |      
|                                               | Cash and cash equivalents                                                |                                                      | $   | 271         |       |              | $   | 635   |      
|                                               | Accounts receivable, net of allowance of $1,658 and
$1,880, respectively |                                                      |     | 1,032       |       |              |     | 934   |      
|                                               | Other current assets                                                     |                                                      |     | 340         |       |              |     | 499   |      
|                                               |                                                                          |                                                      |     |             |       |              |     |      
|                                               |                                                                          | Total current assets                                 |     |             | 1,643 |              |     |       | 2,068 | 
|Property and equipment, net                    |                                                                          |                                                      | 70  |             |       |              | 76  |      
|Software and intangible assets, net            |                                                                          |                                                      | 327 |             |       |              | 375 |      
|Notes receivable, net                          |                                                                          |                                                      | 316 |             |       |              | 383 |      
|Deposits and other assets                      |                                                                          |                                                      | 18  |             |       |              | 18  |      
|                                               |                                                                          |                                                      |     |             |       |              |     |      
|                                               |                                                                          | Total assets                                         |     | $           | 2,374 |              |     | $     | 2,920 | 
|                                               |                                                                          |                                                      |     |             |       |              |     |      
|Liabilities and Shareholders Equity (Deficit) |                                                                          |                                                      |     |             |       |              |     |      
|Current liabilities:                           |                                                                          |                                                      |     |             |       |              |     |      
|                                               | Accounts payable                                                         |                                                      | $   | 602         |       |              | $   | 581   |      
|                                               | Accrued expenses                                                         |                                                      |     | 1,105       |       |              |     | 1,371 |      
|                                               | Deferred revenue                                                         |                                                      |     | 722         |       |              |     | 845   |      
|                                               |                                                                          |                                                      |     |             |       |              |     |      
|                                               |                                                                          | Total current liabilities                            |     |             | 2,429 |              |     |       | 2,797 | 
|Shareholders equity (deficit)                 |                                                                          |                                                      | (55 | )           |       |              | 123 |      
|                                               |                                                                          |                                                      |     |             |       |              |     |      
|                                               |                                                                          | Total liabilities and shareholders equity (deficit) |     | $           | 2,374 |              |     | $     | 2,920 | 
|                                               |                                                                          |                                                      |     |             |       |              |     |      

See accompanying notes to condensed consolidated financial statements.

2



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PowerCerv Corporation

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



|                                             |                                |                          |       |      |       |                              |       |        |        |   |  | 
|-------------------------------------------- | ------------------------------ | ------------------------ | ----- | ---- | ----- | ---------------------------- | ----- | ------ | ------ | - |  | 
|                                             |                                |                          |       |      |       | Three months ended March 31,
|                                             |                                |                          |       |      |       |                             
|                                             |                                |                          |       |      |       | 2002                         |       | 2001  
|                                             |                                |                          |       |      |       |                              |       |       
|Revenues:                                    |                                |                          |       |      |       |                              |       |       
|                                             | License fees                   |                          | $     | 230  |       |                              | $     | 453    |       
|                                             | Service fees                   |                          |       | 730  |       |                              |       | 1,406  |       
|                                             |                                |                          |       |      |       |                              |       |       
|                                             |                                | Total revenues           |       |      | 960   |                              |       |        | 1,859  |  
|                                             |                                |                          |       |      |       |                              |       |       
|Costs and expenses:                          |                                |                          |       |      |       |                              |       |       
|                                             | Cost of licenses               |                          |       | 72   |       |                              |       | 78     |       
|                                             | Cost of services               |                          |       | 301  |       |                              |       | 1,093  |       
|                                             | General and administrative     |                          |       | 271  |       |                              |       | 610    |       
|                                             | Sales and marketing            |                          |       | 215  |       |                              |       | 555    |       
|                                             | Research and development       |                          |       | 259  |       |                              |       | 598    |       
|                                             | Work force reduction and other |                          |       | 25   |       |                              |       | 169    |       
|                                             |                                |                          |       |      |       |                              |       |       
|                                             |                                | Total costs and expenses |       |      | 1,143 |                              |       |        | 3,103  |  
|                                             |                                |                          |       |      |       |                              |       |       
|                                             |                                | Operating loss           |       |      | (183  | )                            |       |        | (1,244 | )
|Interest income (expense), net               |                                |                          | 6     |      |       |                              | 33    |       
|                                             | Loss before income taxes       |                          |       | (177 | )     |                              |       | (1,211 | )     
|Income tax expense                           |                                |                          |      |      |       |                              | 10    |       
|                                             |                                |                          |       |      |       |                              |       |       
|                                             | Net loss and comprehensive     |                          |       |      |       |                              |       |        |       
|                                             |                                | Loss                     |       | $    | (177  | )                            |       | $      | (1,221 | )
|                                             |                                |                          |       |      |       |                              |       |       
|Basic and diluted net loss per share         |                                | $                        | (0.13 | )    |       | $                            | (0.80 | )     
|                                             |                                |                          |       |      |       |                              |       |       
|Shares used in computing net loss per share: |                                |                          |       |      |       |                              |       |       
|                                             |                                | Basic                    |       |      | 1,313 |                              |       |        | 1,535  |  
|                                             |                                |                          |       |      |       |                              |       |       
|                                             |                                | Diluted                  |       |      | 1,313 |                              |       |        | 1,535  |  
|                                             |                                |                          |       |      |       |                              |       |       

See accompanying notes to condensed consolidated financial statements.

3



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PowerCerv Corporation

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

|                                               |                                                                             |                                   |                                                 |      |                              |      |       |        |      |      |  
|---------------------------------------------- | --------------------------------------------------------------------------- | --------------------------------- | ----------------------------------------------- | ---- | ---------------------------- | ---- | ----- | ------ | ---- | ---- | -
|                                               |                                                                             |                                   |                                                 |      | Three months ended March 31,
|                                               |                                                                             |                                   |                                                 |      |                             
|                                               |                                                                             |                                   |                                                 |      | 2002                         |      | 2001 
|                                               |                                                                             |                                   |                                                 |      |                              |      |      
|Cash flows from operating activities:          |                                                                             |                                   |                                                 |      |                              |      |       |       
|                                               | Net loss                                                                    |                                   | $                                               | (177 | )                            |      | $     | (1,221 | )   
|                                               | Adjustments to reconcile net loss
to net cash used in operating activities: |                                   |                                                 |      |                              |      |       |        |     
|                                               |                                                                             | Depreciation and amortization     |                                                 |      | 54                           |      |       |        | 200  |     
|                                               |                                                                             | Deferred revenue                  |                                                 |      | (123                         | )    |       |        | (161 | )   
|                                               |                                                                             | Changes in assets and liabilities |                                                 |      | (325                         | )    |       |        | 545  |     
|                                               |                                                                             |                                   |                                                 |      |                              |      |       |       
|                                               |                                                                             |                                   | Net cash flows used in operating activities     |      |                              | (571 | )     |        |      | (637 | )
|                                               |                                                                             |                                   |                                                 |      |                              |      |       |       
|Cash flows from investing activities:          |                                                                             |                                   |                                                 |      |                              |      |       |       
|                                               | Payment received on notes receivable                                        |                                   |                                                 | 122  |                              |      |       | 61     |     
|                                               | Purchases of property and equipment, net                                    |                                   |                                                 |     |                              |      |       | (2     | )   
|                                               |                                                                             |                                   |                                                 |      |                              |      |       |       
|                                               |                                                                             |                                   | Net cash flows provided by investing activities |      |                              | 122  |       |        |      | 59   |  
|                                               |                                                                             |                                   |                                                 |      |                              |      |       |       
|Cash flows from financing activities:          |                                                                             |                                   |                                                 |      |                              |      |       |       
|                                               | Net proceeds from issuance of preferred stock                               |                                   |                                                 | 85   |                              |      |       |       |     
|                                               |                                                                             |                                   |                                                 |      |                              |      |       |       
|                                               |                                                                             |                                   | Net cash flows provided by financing activities |      |                              | 85   |       |        |      |     |  
|                                               |                                                                             |                                   |                                                 |      |                              |      |       |       
|Net decrease in cash and cash equivalents      |                                                                             |                                   | (364                                            | )    |                              |      | (578  | )     
|Cash and cash equivalents, beginning of period |                                                                             |                                   | 635                                             |      |                              |      | 2,136 |       
|                                               |                                                                             |                                   |                                                 |      |                              |      |       |       
|Cash and cash equivalents, end of period       |                                                                             | $                                 | 271                                             |      |                              | $    | 1,558 |       
|                                               |                                                                             |                                   |                                                 |      |                              |      |       |       

See accompanying 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 condensed consolidated balance sheet of PowerCerv Corporation and its
subsidiary (collectively, the Company) as of March 31, 2002, and the
condensed consolidated statements of operations for the three months ended
March 31, 2002 and 2001 and the condensed consolidated statements of cash flows
for the three months ended March 31, 2002 and 2001 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 March 31, 2002, and
for all periods presented have been made. The condensed consolidated balance
sheet at December 31, 2001 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. These condensed consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended December
31, 2001, included in the Companys 2001 Annual Report on Form 10-KSB filed
with the SEC on April 16, 2002 (2001 Annual Report).

The results of operations for the three months ended March 31, 2002 are
not necessarily indicative of results that may be expected for any other
interim period or for the full fiscal year.



|B. |  | Significant Accounting Policies
|-- |  | -------------------------------
|  
|   |  | Revenue Recognition            

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

5



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PowerCerv Corporation

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

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.



| |  | New Accounting Pronouncements
| |  | -----------------------------

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 the Statement
apply to goodwill and other intangible assets acquired between July 1, 2001 and
the effective date of SFAS 142. The adoption of this statement did not have a
significant effect on the Companys results of operations or financial
position. The Company recognized $7,000 of goodwill amortization expense in
2001. Goodwill amounted to $6,000 at March 31, 2002.

In July 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. This statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This Statement applies to
all entities. It applies to legal obligations associated with the retirement
of long-lived assets that result from the acquisition, construction,
development and (or) the normal operation of a long-lived asset, except for
certain obligations of lessees. This Statement is for financial statements
issued for fiscal years beginning after June 15, 2002. The Company is
evaluating the impact of the adoption of this standard and has not yet
determined the effect of adoption on its financial position and results of
operations.

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This statement addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets and supersedes FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The provisions
of the statement are effective for financial statements issued for fiscal years
beginning after December 15, 2001. The adoption of this statement on January
1, 2002 did not have a significant effect on the Companys results of
operations or financial position.



|C. |  | Net Loss Per Share Data
|-- |  | -----------------------

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

6



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PowerCerv Corporation

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



|            |                                                                           |   |                    |       |      |   |       |        |  
|----------- | ------------------------------------------------------------------------- | - | ------------------ | ----- | ---- | - | ----- | ------ | -
|            |                                                                           |   | Three Months Ended
|            |                                                                           |   | March 31,         
|            |                                                                           |   |                   
|            |                                                                           |   | 2002               |       | 2001
|            |                                                                           |   |                    |       |     
|Basic:      |                                                                           |   |                    |       |      |   |       |       
|            | Net loss                                                                  |   | $                  | (177  | )    |   | $     | (1,221 | )
|            |                                                                           |   |                    |       |      |   |       |       
|            | Average shares outstanding                                                |   |                    | 1,313 |      |   |       | 1,535  |  
|            |                                                                           |   |                    |       |      |   |       |       
|Basic EPS   |                                                                           | $ | (0.13              | )     |      | $ | (0.80 | )     
|            |                                                                           |   |                    |       |      |   |       |       
|Diluted:    |                                                                           |   |                    |       |      |   |       |       
|            | Net loss                                                                  |   | $                  | (177  | )    |   | $     | (1,221 | )
|            |                                                                           |   |                    |       |      |   |       |       
|            | Average shares outstanding                                                |   |                    | 1,313 |      |   |       | 1,535  |  
|            | Net effect of dilutive stock options -
based on the treasury stock method |   |                    |      |      |   |       |       |  
|            |                                                                           |   |                    |       |      |   |       |       
|            | Totals                                                                    |   |                    | 1,313 |      |   |       | 1,535  |  
|            |                                                                           |   |                    |       |      |   |       |       
|Diluted EPS |                                                                           | $ | (0.13              | )     |      | $ | (0.80 | )     
|            |                                                                           |   |                    |       |      |   |       |       

Common stock equivalents in the three-month periods ended March 31, 2002
and 2001, were anti-dilutive due to the net losses sustained by the Company
during these periods, thus the diluted net loss per share in these periods is
the same as the basic net loss per share.



|D. |  | Commitments
|-- |  | -----------

The Company has entered into employment agreements with certain of its
executive officers. Information regarding these agreements is available in the
Companys 2001 Annual Report.



|E. |  | Contingencies
|-- |  | -------------

Lifsey v. Ross, et. al.:A complaint was filed on July 24, 1997, in the
United States District Court for the Middle District of Florida, captioned J.
Conrad Lifsey vs. Harold R. Ross, Gerald R. 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 II, L.P., and Summit Ventures III, L.P. 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 the defendants violated the
Securities Act of 1933 and the Securities Exchange Act of 1934 in connection
with the Companys IPO and in its subsequent securities filings, press releases
and other public statements. The parties have agreed to a settlement (for
which the Company is insured) and have filed with the Court a Memorandum of
Understanding. The parties are currently drafting the terms of the settlement.

The Company, in the normal course of business, is also subject to
miscellaneous legal proceedings. The Company is defending these proceedings
and currently 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 position or results of operations.



|F. |  | Income Taxes
|-- |  | ------------

The Companys federal income tax returns for the years ended December 31,
1996 and 1995 were subject to a routine examination by the Internal Revenue
Service that resulted in an assessment of $66,000 of federal tax, $143,000 of
state tax and approximately $150,000 of interest. The Company

7



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PowerCerv Corporation

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

recorded a
charge for this exposure upon receiving the notice of assessment in 2000, but
is currently in the process of appealing this assessment.



|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 provide Integrated Enterprise Response Software
Solutions with e-Commerce application products.

The following tables provide the various segment data (dollars in
thousands):

|                       |           |  |                                                 |     |          |  |             |     |       |   |      |   |  |  |      |     | 
|---------------------- | --------- |  | ----------------------------------------------- | --- | -------- |  | ----------- | --- | ----- | - | ---- | - |  |  | ---- | --- | 
|                       |           |  | For the Three-Month Period Ended March 31, 2002
|                       |           |  |                                                
|                       |           |  | License                                         |     |          |  |             |     |       |   |      |   |  |  |     
|                       |           |  | Product                                         |     | Services |  | Unallocated |     | Total
|                       |           |  |                                                
|Revenues from external |           |  |                                                 |     |          |  |             |     |       |   |      |   |  |  |      |    
|                       | Customers |  | $                                               | 230 |          |  | $           | 730 |       |   |      |  |  |  | $    | 960 | 
|Segment profit (loss)  |           |  | (316                                            | )   |          |  | 429         |     |       | $ | (290 | ) |  |  | (177 | )  

|                       |           |  |                                                 |     |          |  |             |       |       |   |      |   |  |  |        |       | 
|---------------------- | --------- |  | ----------------------------------------------- | --- | -------- |  | ----------- | ----- | ----- | - | ---- | - |  |  | ------ | ----- | 
|                       |           |  | For the Three-Month Period Ended March 31, 2001
|                       |           |  |                                                
|                       |           |  | License                                         |     |          |  |             |       |       |   |      |   |  |  |       
|                       |           |  | Product                                         |     | Services |  | Unallocated |       | Total
|                       |           |  |                                                
|Revenues from external |           |  |                                                 |     |          |  |             |       |       |   |      |   |  |  |        |      
|                       | Customers |  | $                                               | 453 |          |  | $           | 1,406 |       |   |      |  |  |  | $      | 1,859 | 
|Segment profit (loss)  |           |  | (778                                            | )   |          |  | 313         |       |       | $ | (756 | ) |  |  | (1,221 | )    

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

|                                 |  |                            |      |      |  |   |      |  
|-------------------------------- |  | -------------------------- | ---- | ---- |  | - | ---- | -
|                                 |  | For the Three-Month Period
|                                 |  | Ended March 31,           
|                                 |  |                           
|                                 |  | 2002                       |      | 2001
|                                 |  |                           
|General and administrative costs |  | $                          | (271 | )    |  | $ | (610 | )
|Work force reduction             |  |                            | (25  | )    |  |   | (169 | )
|Interest income (expense), net   |  |                            | 6    |      |  |   | 33   |  
|Income tax expense               |  |                            |     |      |  |   | (10  | )
|                                 |  |                           
|                                 |  | $                          | (290 | )    |  | $ | (756 | )

8



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PowerCerv Corporation

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



|H. |  | Work Force Reduction and Other
|-- |  | ------------------------------

During the first quarter of 2002, the Company announced and completed a
minor work force reduction. The Company recorded a restructuring charge of $25
related to the severance costs of 3 employees (2 non-senior level services
employees and 1 non-senior level research and development employee) and
relocation costs. As of March 31, 2002, these costs were substantially paid.

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 March 31, 2002, approximately
$33 remains in accrued liabilities for severance payments in connection with
this restructuring.



|I. |  | Line of Credit
|-- |  | --------------

During April 2002, the Company obtained a commitment from a bank to
provide a $100,000 line of credit, secured by certain assets of the Company and
guaranteed by the chief executive officer and by a
board member. The line of credit is available to finance working capital
needs through 2002; however, loans will be reviewed by the bank six months from
issuance.

9



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##### 



PowerCerv Corporation

Item 2. Management's Discussion and Analysis or Plan of Operations(dollars in thousands)

Overview

The Company has focused its resources, including product development,
marketing and sales efforts, on the needs and requirements of small and medium
size manufacturing companies with annual revenues between $5 million and $250
million. The Companys revenues currently consist primarily of software
license fees and fees for services, primarily relating to the Companys
applications, including consulting, education and maintenance and support.
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
ERPPlusand web-enabled eSeriesapplication products.

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

This Quarterly Report on Form 10-QSB and any documents incorporated herein
by reference contain 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, 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.
Forward-looking statements include, without limitation, statements regarding
the extent and timing of future revenues and expenses and customer demand for
the Companys products and services as described in the Companys 2001 Annual
Report on Form 10KSB filed with the SEC on April 16, 2002, under Managements
Discussion and Analysis or Plan of Operations  Plan of
Operations 
Forward-Looking Statements and Associated Considerations;  Fluctuations in
Quarterly Activity and Results of Operations; 
Competition;
 Economic
and Market Condition Risks;  Lengthy Sales Cycle; Ability to Manage
Change;  Liquidity;  Availability of Consulting Personnel, 
Dependence on Product Development and Associated Risks,  Dependence on New
Products;
 Dependence on PowerBuilder® and others;  Dependence on
Proprietary Technology; Risks of Third-Party Claims for Infringement; 
Expansion of Indirect Channels; Potential for Channel Conflict;  Voting
Control by Management;
 Dependence on Key Personnel; and  Possible
Volatility of Stock Price. The Company assumes no obligation to update any
such forward-looking statements. It is important to note that the Companys
actual results could differ materially from those in such forward-looking
statements.

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:

10



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##### 



PowerCerv Corporation

Item 2. Management's Discussion and Analysis or Plan of Operations(dollars in thousands)

|                             |  |                              |     |        |  |      |     |    |  |   |       |  
|---------------------------- |  | ---------------------------- | --- | ------ |  | ---- | --- | -- |  | - | ----- | -
|                             |  | Three months ended March 31,
|                             |  |                             
|Revenues                     |  | 2002                         |     | Change |  | 2001
|                            
|License fees                 |  | $                            | 230 |        |  |      | (49 | %) |  | $ | 453   |  
|Percentage of total revenues |  |                              | 24  | %      |  |      |     |    |  |   | 24    | %
|                            
|Service fees                 |  | $                            | 730 |        |  |      | (48 | %) |  | $ | 1,406 |  
|Percentage of total revenues |  |                              | 76  | %      |  |      |     |    |  |   | 76    | %
|                            

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-month period ended March 31, 2002,
compared to the same period in 2001. License fees for the first quarter of 2001
included a $270 fee from a license and OEM agreement with an unrelated entity.

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 was due to fewer new license deals closed in 2001 and 2002. 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 may 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:

|                        |  |                              |     |        |  |      |     |    |  |   |       |  
|----------------------- |  | ---------------------------- | --- | ------ |  | ---- | --- | -- |  | - | ----- | -
|                        |  | Three months ended March 31,
|                        |  |                             
|Cost of revenues:       |  | 2002                         |     | Change |  | 2001
|                       
|Cost of licenses        |  | $                            | 72  |        |  |      | (8  | %) |  | $ | 78    |  
|Gross profit percentage |  |                              | 69  | %      |  |      |     |    |  |   | 83    | %
|                       
|Cost of services        |  | $                            | 301 |        |  |      | (72 | %) |  | $ | 1,093 |  
|Gross profit percentage |  |                              | 59  | %      |  |      |     |    |  |   | 22    | %
|                       

Cost of licenses.The cost of licenses consists primarily of production
costs, royalties associated with modules of the Companys application products,
and the amortization of intangible assets. The decrease in gross profit
percentage in the current quarter is due to lower license fee revenue and
certain fixed costs due to the amortization of intangible assets.

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.

11



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##### 



PowerCerv Corporation

Item 2. Management's Discussion and Analysis or Plan of Operations(dollars in thousands)

The cost of services decreased
72% in the first quarter of 2002 compared to 2001 primarily due to lower
revenue resulting in lower compensation expense and operating costs for the
period. During 2001 and the first quarter of 2002, the Company implemented
several work force reductions and cost cutting measures. Management believes
that these reductions have resulted in lower expenses and increased utilization
of remaining services 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:

|                             |  |                              |     |        |  |      |     |    |  |   |     |  
|---------------------------- |  | ---------------------------- | --- | ------ |  | ---- | --- | -- |  | - | --- | -
|                             |  | Three months ended March 31,
|                             |  |                             
|Operating expenses:          |  | 2002                         |     | Change |  | 2001
|                            
|General and administrative   |  | $                            | 271 |        |  |      | (56 | %) |  | $ | 610 |  
|Percentage of total revenues |  |                              | 28  | %      |  |      |     |    |  |   | 33  | %
|                            
|Sales and marketing          |  |                              | 215 |        |  |      | (61 | %) |  |   | 555 |  
|Percentage of total revenues |  |                              | 22  | %      |  |      |     |    |  |   | 30  | %
|                            
|Research and development     |  |                              | 259 |        |  |      | (57 | %) |  |   | 598 |  
|Percentage of total revenues |  |                              | 27  | %      |  |      |     |    |  |   | 32  | %
|                            

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-month period
ended March 31, 2002, compared to the three-month period ended March 31, 2001,
primarily resulted from lower compensation, bad debt and depreciation costs.
The G&A percentage of total revenue decreased due to substantial cost cutting
measures implemented by management in 2000 and 2001. Management believes that
these reductions 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; and related communications
costs. Sales and marketing costs decreased 61% for the three-month period ended
March 31, 2002, as compared to the same period in 2001 primarily as a result of
lower compensation expense and lower marketing expense in the current period.
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. Management 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 further negative impact as a result
of these actions.

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 57% for the three-month period ended
March 31, 2002, as compared to the same period in 2001, primarily due to
decreased personnel costs. The R&D cost percentage of total revenue decreased
due to substantial cost cutting

12



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##### 



PowerCerv Corporation

Item 2. Management's Discussion and Analysis or Plan of Operations(dollars in thousands)

measures implemented by the Company in 2000 and
2001. Management 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 further negative impact as a result of these actions.



| |  | Work Force Reduction and Other.
| |  | -------------------------------

During the first quarter of 2002, the Company announced and completed a
minor work force reduction. The Company recorded a restructuring charge of $25
related to the severance costs of 3 employees (2 non-senior level services
employees and 1 non-senior level research and development employee) and
relocation costs. As of March 31, 2002, these costs were substantially paid.

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 March 31, 2002, approximately $33 remains in accrued liabilities for
severance payments in connection with this restructuring.

The Company expects that these reductions will result 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.
| |  | -------------

The Companys federal income tax returns for the years ended December 31, 1996
and 1995 were subject to a routine examination by the Internal Revenue Service
that resulted in an assessment of $66,000 of federal tax, $143,000 of state tax
and approximately $150,000 of interest. The Company recorded a charge for this
exposure upon receiving the notice of assessment in 2000, but is currently in
the process of appealing this assessment

Liquidity and Capital Resources

The following tables sets forth, for 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    
|                          |  | March 31, |      |        |  |      |     | December 31,
|                          |  |           |      |        |  |      |     |             
|                          |  | 2002      |      | Change |  | 2001
|                          |  |          
|Working capital deficit   |  | $         | (786 | )      |  |      | 8   | %            |  | $ | (729 | )
|Cash and cash equivalents |  | $         | 271  |        |  |      | (57 | %)           |  | $ | 635  |  

Cash and cash equivalents decreased as of March 31, 2002, compared to
December 31, 2001, due to reduced operating losses and payments of accrued
liabilities during the quarter.

13



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##### 



PowerCerv Corporation

Item 2. Management's Discussion and Analysis or Plan of Operations(dollars in thousands)

|                                            |  |                              |      |        |  |         |     |   |  |  |      |  
|------------------------------------------- |  | ---------------------------- | ---- | ------ |  | ------- | --- | - |  |  | ---- | -
|                                            |  |                              |      |        |  | For the |     |   |  | 
|                                            |  | Three months ended March 31,
|                                            |  |                             
|                                            |  | 2002                         |      | Change |  | 2001   
|                                            |  |                             
|Cash flows used in operating activities     |  |                              | (570 | )      |  |         | 11  | % |  |  | (637 | )
|Cash flows provided by investing activities |  |                              | 122  |        |  |         | 107 | % |  |  | 59   |  
|Cash flows provided by financing activities |  |                              | 85   |        |  |         | 100 | % |  |  |     |  

For the three-month period ended March 31, 2002, cash used by operating
activities totaled $570, due principally to lower revenues, resulting losses
for the quarter and the timing of payments and cash collections.

The Companys cash provided by investing activities totaled $122 and $59
for the three-month periods ended March 31, 2002 and 2001, respectively,
principally due to payments received on notes receivable.

The Companys cash provided by financing activities totaled $85 for the
three-month period ended March 31, 2002, due to payment received on notes
receivable associated with convertible preferred stock issued in 2001.

At March 31, 2002, the Companys primary source of liquidity consisted of
its cash and cash equivalents balance of $271 and its short-term accounts
receivable balance of $1,032. During April 2002,
the Company obtained a $100 line of credit commitment secured by certain assets
of the Company and guaranteed by an officer and director of the Company. The
Company is currently seeking other sources of debt or equity. 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.

In 2000 and 2001, the Company took restructuring actions involving
workforce reductions and office closures. There can be no assurance that the
Company will return to profitability as a result of these actions or that
further actions will not be necessary through the remainder of 2002. 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.
Restructuring actions have resulted in reduced personnel throughout the
Company; which will limit the Companys ability to pursue sales and service
fees opportunities.

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 during the year 2002 is likely to be materially adversely affected.
However, as a result of the Companys 2000 and 2001 restructuring decisions,
the amount of cash used in operations decreased substantially from 2000 through
the quarter ended March 31, 2002. Minor workforce reductions were completed in
2002 to further align costs with revenues. The Company is currently in
negotiations with a third party to raise capital from strategic operating
agreements, which may also involve the sale of equity securities, but no
definitive agreement has been reached. As more fully discussed in the
Companys 2001 Annual Report  Plan of Operations and Note 3 to the

14



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PowerCerv Corporation

Item 2. Management's Discussion and Analysis or Plan of Operations(dollars in thousands)

consolidated financial statements and the going concern uncertainty explanatory
paragraph in the related Report of Independent Certified Public Accountants
also included in the Companys 2001 Annual Report, the Company has implemented,
or is in the process of initiating, further cost cutting measures and other
actions that management currently believes will provide adequate working
capital for at least twelve months. 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. Additionally,
the Company will be required to further re-examine its current business plans.
Accordingly, there can be no assurance that the Company will be able to raise
additional capital or that the other proposed actions will provide such
adequate working capital.

To date, inflation has not had a material effect on the Companys
financial results. There can be no assurance, however, that inflation may not
adversely affect the Companys financial results in the future.

15



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##### 



PowerCerv Corporation

Form 10-QSB

Part II. Other Information

Item 1.   Legal Proceedings

Lifsey v. Ross, et. al.:A complaint was filed on July 24, 1997, in the
United States District Court for the Middle District of Florida, captioned J.
Conrad Lifsey vs. Harold R. Ross, Gerald R. 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 II, L.P., and Summit Ventures III, L.P. 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 the defendants violated the
Securities Act of 1933 and the Securities Exchange Act of 1934 in connection
with the Companys IPO and in its subsequent securities filings, press releases
and other public statements. The parties have agreed to a settlement and have
filed with the Court a Memorandum of Understanding. The parties are currently
drafting the terms of the settlement.

The Company, in the normal course of business, is also subject to
miscellaneous 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 effect the Companys financial position.

16



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##### 



PowerCerv Corporation

Form 10-QSB

(for the quarterly period ended March 31, 2002)

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: May 15, 2002 |  | /s/ Marc J. Fratello                                                                                                    
|                   |  |                                                                                                                         
|                   |  | Marc J. Fratello,
President and Chief Executive Officer
(Duly Authorized Officer and Acting
Principal Financial Officer)

17