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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-K



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(Mark One)

| |                                                                                      
| | -------------------------------------------------------------------------------------
| | ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2000

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 0-26161

INTERACT COMMERCE CORPORATION

(Exact name of registrant as specified in its
charter)


|                                                                       |  |                                                 
|---------------------------------------------------------------------- |  | ------------------------------------------------
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|DELAWARE
	State or other jurisdiction of incorporation or organization |  | 86-0808340
	(I.R.S. Employer Identification No.)

8800 N. Gainey Center Drive, Suite 200, Scottsdale,
Arizona 85258

(Address of principal executive offices) (Zip
Code)


(480) 368-3700

(Registrants telephone number, including
area code)


Securities registered pursuant to Section 12(b) of the
Act: None

Securities registered pursuant to Section 12(g) of the
Act:


Common Stock, $0.001 par value


(Title of class)


Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days.  Yes 
  No

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.

The aggregate market value of the voting common stock held by
non-affiliates of the registrant on March 22, 2001 was
approximately $95,135,519, based on the average of the high and
low prices of the registrants common stock reported on the
NASDAQ National Market on such date. Shares of common stock held
by each current executive officer and director and by each
person who is known by the registrant to own 5% or more of the
outstanding common stock have been excluded from this
computation in that such persons may be deemed to be affiliates
of the registrant. Share ownership information of certain
persons known by the registrant to own greater than 5% of the
outstanding common stock for purposes of the preceding
calculation is based solely on information on Schedule 13G
filed with the Commission and is as of December 31, 2000.
This determination of affiliate status is not a conclusive
determination for other purposes.

As of March 22, 2001, there were 20,362,688 outstanding
shares of Common Stock, par value $.001 per share, of Interact
Commerce Corporation.



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TABLE OF CONTENTS



|         |                                                                                               |  |  |  |  |  |  | 
|-------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I  
|         | Item 1. Business                                                                             
|         | Item 2. Properties                                                                           
|         | Item 3. Legal Proceedings                                                                    
|         | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II 
|         | Item 5. Market for Registrants Common Stock and Related Stockholder Matters                 
|         | Item 6. Selected Consolidated Financial Data                                                 
|         | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|         | Item 7A. Quantitative and Qualitative Disclosures about Market Risk                          
|         | Item 8. Financial Statements and Supplementary Data                                          
|         | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III
|         | Item 10. Directors and Executive Officers of the Registrant                                  
|         | Item 11. Executive Compensation                                                              
|         | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|         | Item 13. Certain Relationships and Related Transactions                                      
|PART IV 
|         | ITEM 14. Exhibits, Financial Statements and Schedules and Reports On Form 8-K                
|EX-4.4  
|EX-10.22
|EX-10.23
|EX-10.24
|EX-10.25
|EX-10.26
|EX-21.1 
|EX-23.1 



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TABLE OF CONTENTS

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|         | ITEM 10. |    | Directors and Executive Officers of the Registrant                                     |      | 33
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|         | ITEM 14. |    | Exhibits, Financial Statements and Schedules and Reports on
	Form 8-K                  |      | 34

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this Report, to the
extent not set forth herein, is incorporated herein by reference
from the Registrants definitive proxy statement relating
to the annual meeting of Stockholders to be held in 2001 or an
amendment to this annual report, which definitive proxy
statement or amendment shall be filed with the Securities and
Exchange Commission within 120 days after the end of the
fiscal year to which this Report relates.

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PART I




Item 1.  Business

Our disclosure and analysis in this report contains
forward-looking statements. When used in this discussion, the
words believes, anticipates and
intends and similar expressions are intended to
identify forward-looking statements, but the absence of these
words does not necessarily mean that a statement is not forward
looking. Forward-looking statements include, but are not limited
to, statements about our expansion plans, objectives,
expectations, intentions, and target market, and are subject to
risks and uncertainties that could cause actual results to
differ materially from those anticipated in these
forward-looking statements, which speak only as of the date of
this report. Our actual results could differ materially from
those anticipated in these forward-looking statements for many
reasons, including the factors described under Important
Factors That May Affect Our Business, Our Financial Condition,
Our Results of Operations and Our Stock Price and
elsewhere in this report. We undertake no obligation to publicly
release any revisions to these forward-looking statements that
may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of anticipated events.
Readers are urged, however, to review the factors and risks we
describe in reports we file from time to time with the
Securities and Exchange Commission.

Overview

Interact Commerce Corporation is a leading provider of customer
relationship management (CRM) software for small and
mid-sized organizations. The company builds products that are
easy to use, quick to deploy, and provide anytime, anywhere
access to critical information. Our solutions are flexible and
reliable and are designed to provide our customers with a low
total cost of ownership and a rapid return on investment. The
companys products include SalesLogix, a mid-market CRM
leader used by over 3,300 companies; and ACT!, the best-selling
contact manager used by more than 3.2 million professionals
and 11,000 corporations. Our software solutions are sold in over
67 countries worldwide through value added resellers and by
our direct sales force.

In todays marketplace, customer relationships and service
are top priorities for any growing business. Traditional
CRM-only solutions typically focus only on the front office
department functions of sales, marketing and customer service.
Interact believes an open architecture that interconnects the
front office, back office accounting and ERP, and the Internet
(or Web office) is key to providing the most effective customer
acquisition and retentive services. Our open architecture
enables companies to build and maintain cohesive, complete
customer histories that can be shared across departments and
geographies. Companies enter information once and make it
available immediately to everyone who needs it. With the front
office linked to the back office, employees on the front lines
have the inventory, order processing and shipment status
information they need to make all customer interactions as
productive as possible. Back-office personnel know the status of
in-process deals and support issues that could affect customer
billing and payments. Because all points of contact with the
customer share the same knowledge base, the customer has a
consistent experience, regardless with whom he or she interacts.
In our experience, the results are increased sales, higher
customer retention rates and repeat business.

We sell our SalesLogix products primarily through our network of
more than 525 resellers, whom we refer to as our business
partners. Our Business Partners provide the local support and
implementation services required to install, configure and
customize our products. We sell ACT! software primarily through
a two-tier distribution channel and a direct corporate account
telesales team. ACT! is supported by over 350 ACT! Certified
Consultants (ACCs) who provide services such as
customization, data integration and installation.

Our software has been built with standard features that enable
customers to quickly derive benefits, as well as the flexibility
to create a solution tailored to the specific and evolving
requirements of our customers. We now have licensed our software
to customers in a wide variety of industries, including high
technology, real estate, financial services, manufacturing,
pharmaceutical, marketing and consulting industries.

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Industry Background

In todays highly competitive global marketplace, we
believe it is increasingly critical for companies to prioritize
their businesses around the attraction, conversion and retention
of customers. Many companies are redirecting their technology
investments toward systems that are intended to maximize their
long-term revenue streams by increasing sales efficiency and
customer loyalty. The need for relationship management software
spans from individuals and small companies, to midsize companies
and divisions of larger companies, to large enterprises.
However, each of these marketplaces has different needs for
infrastructures, technological capabilities, budgets, reporting
structures and integration.

For businesses made up of individuals or franchised sales
professionals, such as insurance, financial services and
real-estate, that do not have management accountability for
sales production, the focus of technology in assisting the
development of relationships is primarily centered around the
productivity of the individual rather than the individual as
part of a team. The appropriate technology for these businesses
is not necessarily defined by the size of the company, but by
whether or not their sales professionals function individually,
within small teams, or if they are part of an organization that
has a need to share information across a broad spectrum of
people and channels.

Within industries that are characterized by complex products,
services, or channel relationships, competitive advantage often
results from a companys ability to provide products,
services and content that are specific to the preferences of
individual customers, particularly when they are making buying
decisions. Many companies are realizing that existing and
potential customers often access their organization through
multiple business channels, including e-commerce channels,
traditional direct sales forces, and indirect channel partners.
In response to this shift toward sales and customer-oriented
systems, many companies are investing heavily in CRM software,
which is designed to automate administrative support for large
enterprise sales forces and to manage more effectively customer
databases for sales, customer service and marketing departments.
These solutions traditionally have included centralized data
management functionality for direct sales force automation, call
center service and support, and marketing automation, and have
helped to eliminate cost inefficiencies by streamlining and
consolidating customer information and other internal
administrative tasks. However, many companies that implemented
traditional CRM solutions have found themselves with systems
that do not interactively engage individual buying decisions or
add value to those relationships. With the broad use of the
Internet as a selling and service channel, a need has emerged to
integrate these newer mediums of revenue generation and customer
satisfaction with traditional front office CRM, back office
accounting, and Enterprise Resource Planning (ERP)
systems for creating a unified view of the customer and greater
efficiencies within companies. We believe it is therefore
important that companies not only equip their channels with
systems that provide competitive differentiation when a
customers buying decision is being made, but that they
provide the customer with consistent, valuable services across
all channels.

The market for CRM software applications is large and growing
rapidly. IDC Research estimates that the size of this market
will increase to more than $12 billion in 2004. AMR
Research estimates that sales force automation is the fastest
growing segment of this market with an annual growth rate of
64%. A number of applications designed to address the front
office automation market have been introduced over the past six
or seven years, the majority of which were targeted at Fortune
1000 enterprise companies. While many of these software
applications for large enterprise companies have achieved some
degree of market acceptance, we believe significant limitations
remain. These large enterprise software applications are
typically very expensive and difficult to deploy and support.
They generally entail substantial investments, often millions of
dollars, to cover new software and hardware and significant
implementation services. The often extensive customization and
integration work required results in long implementation cycles
that can range from six to 18 months or more and makes
these software applications poorly suited to address rapidly
changing business environments. We believe these enterprise
applications are also poorly suited to the mid-market, resulting
in low penetration of CRM software in the market that we address.

AMR Research estimates that there are 150,000 to 200,000
companies worldwide with revenues between $10 million and
$250 million. Our products have been designed specifically to
address this mid-market in

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A variety of niche e-business software applications have been
introduced which target a specific aspect of the sales or
customer management process. However, these point solutions have
not provided the advanced, comprehensive selling functionality
necessary to offer targeted products, services and content based
upon a customers unique profile or requirements, which we
believe is a critical success factor for individuals or
companies using e-commerce to sell their products and services.
In addition, these Internet applications typically do not
interact with a companys traditional sales and
distribution channels or the CRM infrastructures that many
companies have deployed. Because many of these applications were
designed to support only Internet-based interactions, they
typically are unable to collect information about customers when
they access a companys traditional sales channels, leaving
a company with an incomplete view of an individual
customers behavior, requirements and preferences. We
believe this inability to enable a common view of individual
customers across multiple selling channels limits a
companys ability to develop strategies for improving its
product offerings, services, and selling processes in ways that
would encourage repeat business from those customers.

We believe companies that sell through multiple channels require
a new generation of e-business sales and marketing applications
to offer targeted products, services, and content to individual
customers. To encourage conversion of potential customers into
customers and generate repeat business from existing customers,
we believe these companies must provide personalized solutions
in a cost effective and reliable fashion. We believe these
capabilities must support the rapid deployment of an effective
e-commerce channel for selling products and services, and must
also automate complex selling activities within traditional
direct and indirect selling channels. We believe this
next-generation software must also capitalize on the highly
interactive nature of the Internet to collect real-time customer
information from individual selling interactions across all
sales channels. This common view of customer activity must be
shared across a companys enterprise as a basis for
developing improved product offerings, services, and selling
processes that encourage long-term customer loyalty.

The market for CRM application hosting, a subset of the
$12 billion overall CRM market, is expected to increase
considerably over the next several years. Forrester Research
estimates that application hosting for companies with
$50 million to $1 billion in revenue is projected to
grow to $7.2 billion market by 2003, but only $233 million
for companies over $1 billion in revenue. They also
estimate that companies will spend more on CRM application
hosting than any other application other than eCommerce. We
believe that ASP hosting of CRM applications should be an option
for all customers, but must support offline usage and wireless
access to be effective for sales people who spend much of their
time out of the office, and thus disconnected from fast Internet
connections.

We believe the rapid growth in the wireless web access market
around the world will increase and usage will become
increasingly commonplace with business professionals. Therefore,
easy to use access to customer data through wireless devices,
including active notifications of customer account activity,
will be required in all successful CRM offerings. Users will
increasingly use multiple methods of access in any given work
day, including web browsers, wireless handheld devices such as
Palm OS-powered handhelds, web phones, and Windows-based
portable computers.

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We believe that individuals and organizations of all sizes
require software to automate customer and prospect interactions
through field sales, internal telesales, marketing, and customer
service, e-commerce and back office functions across their
business. We believe these solutions must



| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | Leverage the Internet and wireless technologies                               
|
| |  | Obtain high user adoption for successful deployments                          
|
| |  | Integrate seamlessly with relevant customer data across all
	business channels
|
| |  | Enable rapid deployment at a low cost                                         

The Interact Commerce Solutions

Both SalesLogix and ACT! are dominant players in their
respective markets, including high tech, real estate, financial
services, manufacturing, marketing and consulting industries.
With SalesLogix and ACT!, Interact has compelling relationship
management solutions for individuals and small workgroups
through mid-market sized companies. The synergy between our two
products enables our company to recommend products based on the
needs of the customer group, not the size of the company or the
number of licensed seats in the implementation.

We believe SalesLogix is the leading mid-market CRM solution
based on the companys sales to over 3,300 customers in
only four years. Mid-market, as defined by leading industry
analysts, consists of companies or divisions within larger
companies with $25 million to $500 million in revenue on the low
end, and up to $1 billion in revenue on the upper end.
SalesLogix provides the sales, marketing and support business
units of these companies with the information to better manage
customer relationships and achieve rapid return on investment.
SalesLogix is one of the first CRM companies to embrace Windows,
Web and Wireless technologies and thus provide access to
customers anytime, anywhere using virtually any device.
SalesLogix is modular, customizable and scaleable, enabling all
levels of an organization to benefit from its functionality,
whether they are on the road or in the office. With the
flexibility to implement rapidly while customizing later as
needed, combined with an affordable price, SalesLogix offers
organizations a rapid return on investment. SalesLogix also
integrates back office ERP and accounting organizations, as well
as e-commerce customer interfaces, to provide a more complete
view of the customer and integrated processes for getting the
most out of those relationships.

ACT! is the best-selling contact manager in the industry for
managing and growing business relationships. ACT! is used by an
estimated 3.2 million individual users, including 11,000
corporate accounts worldwide. The product is suitable for
individuals, the small-office/ home-office (SOHO) market and
small groups or individuals within large corporations. It
enables users to track all of their daily activities in one
central repository. They can better manage and profit from their
relationships by tracking information about their contacts,
meeting schedules, calls, and follow-up activities to keep them
on top of and be knowledgeable about their relationships. ACT!
users have access to their contacts, calendar, notes and
histories and specialized Web services, anytime, anywhere on
virtually any device.

Commitment to delivering products that people use.CRM
systems are useful only when people use them  and
they often do not use them if they feel the system is a
corporate mandate rather than a valuable tool. Our products are
designed to support the ways that sales people, marketing
professionals and support personnel really work. We believe
users find that our solutions improve productivity rather than
add an extra layer of bureaucracy that distracts them from the
job at hand.

Focus on delivering products with an open architecture that
merge the front office, the back office, and the web office.Customers expect all areas of their vendors
organization to know every interaction they have had with the
vendors business. As a result, linking the accounting,
manufacturing, order fulfillment, customer support, sales,
marketing and web teams creates a positive experience for
customers. It also enables better teamwork and efficiency.
Through partnerships with back office leaders, both SalesLogix
and ACT! connect to the most popular accounting and ERP systems,
providing an essential link that allows companies to build
complete customer histories. Our flagship applications contain
links to the Internet, integrating profile

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Anytime, anywhere access to critical business data.With
our wireless product offerings our customers have access to
vital customer data wherever they are within range of their data
providers at a PC connected to the Internet, in an airport at a
browser-based kiosk, on the train with their personal digital
assistant (PDA), or in the car using their cell phone. This
support is part of our commitment to delivering products and
technologies that give professionals access to data how and when
they want to work.

Strong focus on our target markets.ACT! was originally
designed and built specifically to meet the needs of business
professionals wanting to manage and grow their business
relationships. Built on the same principles as ACT!, SalesLogix
was designed to do for the mid-market what ACT! did for
individuals and small businesses. We recognize that the needs of
the small office/ home office (SOHO) market and the
mid-market are different than those of large enterprises and
develop our products accordingly. As a result of our focus, our
customers receive products that are easy to use, quick to deploy
and address the specific needs of their businesses.

Delivery of rapid return on investment to our customers.Our products are designed to combine out-of-the-box
functionality with industry standard technologies and platforms.
With the flexibility to be implemented rapidly with
customization occurring as needed, combined with affordable
prices, SalesLogix and ACT! offer organizations a rapid return
on investment. We believe this quick provision of value to their
businesses also improves user adoption.

Business Strategy

Our objective is to be the dominant relationship management
software provider for the SOHO and mid-markets. The following
are elements of our strategy:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Continue to dominate the mid-market for CRM solutions.We
	will continue to target businesses, including divisions of
	larger companies, with annual revenues in what we classify as
	Tier 1, which is between $25 million and $500 million, and
	Tier 2, which falls between $500 million and $1 billion. We
	believe that our products and business model are uniquely suited
	to address these markets. We intend to continue focusing on
	developing software that targets the needs of mid-market
	businesses, selling through channels that can best reach and
	support this market segment, and growing and expanding these
	channels.
|
| |  | Continue to grow the industry-leading ACT! user base.In
	the year since our acquisition of ACT!, we have experienced
	strong growth in the ACT! user base. We intend to continue to
	increase the number of individual and corporate license buyers
	of ACT! through additional marketing investment, product
	enhancements, international expansion and key strategic
	partnerships. We also plan to introduce enhancements and
	improvements to the product for the mobile and wireless
	marketplaces.                                                                                                                                    
|
| |  | Capitalize on the synergies between SalesLogix and ACT!We will continue to focus on opportunities within our ACT!
	customer base to upsell them to the SalesLogix product line, as
	many of these businesses grow and can benefit from a complete
	CRM solution.                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Accelerate international expansion.During 2000, we
	expanded our worldwide channel to include representation in 67
	countries. We will focus now on delivering more localized
	product offerings and driving our growth in these markets
	through increasing our marketing activities, adding more
	resellers, salespeople, and distribution channels, and extending
	our strategic partnerships.                                                                                                                                                                                                                                           
|
| |  | Pursue more strategic partnerships in the wireless and
	handheld device arenas.We have established a strategic
	partnership in the wireless arena with Sprint PCS. We intend to
	actively pursue additional partners as well as further develop
	our current relationships through joint marketing activities and
	development.                                                                                                                                                                                                                                                                                                             

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Expand our vertical OEM (Original Equipment Manufacturers)
	and ISV (Independent Software Vendors) partnerships.Our OEM
	and ISV partnerships deliver our back office integration and
	many of our add-on software packages that enhance both
	SalesLogix and ACT! We intend to extend our current 16 OEM
	relationships for SalesLogix and ACT! through joint channel
	development, marketing and training. In addition, we plan to add
	more vertical OEMs and ISV partners to better tailor our
	offerings to specific market needs. We expect to leverage the
	extensive channels that our OEM partners have developed and to
	deliver our products jointly through our reseller channel as
	well as these OEM channels

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Products

We have designed our solutions to be easy to use, rapid to
implement and to deliver a low total cost of ownership even when
implemented in organizations with very diverse needs. The
following tables describe the major capabilities, uses and
technologies in each of our current products.

SalesLogix  CRM Application

|              |  |                                                                                                                                                                                                                              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                                                                     |  |  |  |  |  | 
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------- |  |  |  |  |  | 
|              |  | Capabilities                                                                                                                                                                                                                 |  | Uses                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | Technology                                                         
|              |  |                                                                                                                                                                                                                              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |                                                                    
|Sales         |  |  Account and Contact Management Opportunity Management Sales Processes (Methodologies) Forecasting Integrated Telephony Remote Synchronization
 Integrated Customer Service Data Integrated Back Office Account Data |  | Provides an integrated and comprehensive system to automate the selling process.Enables remote sales representatives and sales agents to manage calls, schedules, and account activities in
a coordinated fashion with the entire organization.                                                                                                                                                                                                |  | WebClient/ServerNetworkRemotePersonal Digital  AssistantsWeb phones
|             
|             
|             
|             
|Marketing     |  |  Lead Capture Lead Management Marketing Automation Campaign Management Literature Fulfillment                                                                                                                           |  | Captures, qualifies and distributes prospect information via the Web.Automatically populates the database, distributes sales leads to the appropriate users and automatically responds to
the prospect according to business rules.Forwards leads to the appropriate salesperson, and analyzes lead flow.Centralized fulfillment according to lead management policy. Automated process. Utilizes third party analytics for customer analysis. |  | WebClient/Server                                                   
|             
|             
|             
|             
|             
|Support       |  |  Call Tracking Problem Tracking Customer Management Contract Management Defect Tracking Quality Assurance Telephony Integration                                                                                       |  | Support Center Management  Provides categorization, statistics, and reporting for training, resource planning, cost analysis and overall support department management.Customer
Self-Services  Insures that customers receive the support to which they are entitled and tracks work performed against contract provisions for billing.                                                                                                      |  | WebClient/Server                                                   
|             
|             
|             
|             
|             
|Configuration |  |  Order Management Configuration Management Guided Selling Marketing Encyclopedia Proposals Pricing                                                                                                                     |  | Provides sales with automated tools to address dynamic customer requirements.Enables customers to make a more informed buying decision.Enhances the sales process through needs
assessment by supporting product configuration and managing pricing rules.Improves pricing accuracy.                                                                                                                                                           |  | WebClient/Server                                                   

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ACT!  Contact Management

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|----------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------- |  |  |  |  |  | 
|                                                                                                                                                |  | Uses                                                                                                                   |  | Uses                                                                                                                                                                                                                                            |  | Technology                                               
|                                                                                                                                                |  |                                                                                                                        |  |                                                                                                                                                                                                                                                 |  |                                                          
|For Individuals, Small Businesses, and Independent Sales
	Professionals in Large Organizations (e.g. real estate,
	insurance, financial, etc.,) |  |  Contact Management Calendar Management List Management Activity Management List Management Letters Fulfillment |  | Provides an integrated and comprehensive system to automate the selling process.Enables remote sales representatives and sales agents to manage calls, schedules, and account activities in
a coordinated fashion with the entire organization. |  | PC-based Remote Personal Digital Assistants Web phones

Competition

The market for relationship management software solutions is
intensely competitive, fragmented and subject to rapid
technological change. We believe we compete effectively in our
marketplace in part because our products are designed
specifically for mid-market organizations and divisions of
larger corporations.

Companies focused on providing contact management and CRM
solutions can be broadly segmented into the following groups:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Traditional CRM and Sales Automation Vendors 
	such as Onyx, Pivotal and Siebel Systems for large enterprise
	organizations; Great Plains for mid-sized organizations; and
	Goldmine for small organizations. These companies generally seek
	to provide automated solutions for traditional sales channels
	through client/server solutions, as well as marketing and
	customer service products.
|
| |  | E-commerce application vendors  such as
	Broadvision, Calico Commerce, Firepond, Kana Communications, and
	Selectica. These companies generally target large enterprise
	organizations and seek to provide advanced selling applications
	for e-commerce that focus on specific aspects of customer
	relationships, online product configuration or buying process.                               
|
| |  | Hosted Web-based Sales Automation
	Applications  such as Salesforce.com and
	Upshot.com. These companies provide hosted Web-based
	applications for sales forces of small to mid-sized companies.                                                                                                                                                                                                 

We believe the principal competitive factors in our market
include, or are likely to include, product performance and
features, price, ease-of-use, quality of support and service,
time to implement, ease of customization, sales and distribution
capabilities, strength of brand name and overall cost of
ownership. We believe we compete effectively with our
competitors with respect to these factors. We have a substantial
customer base and an extensive sales and distribution network,
with the largest global reseller channel of any mid-market CRM
vendor. However, some of our competitors have longer operating
histories, significantly greater resources and greater name
recognition. They also may be able to devote greater resources
to the development, promotion and sale of their products than we
can to ours, which could allow them to respond more quickly than
we can to new or emerging technologies and changes in customer
requirements. We cannot assure you that our competitors will not
offer or develop products that are superior to our products or
that achieve greater market acceptance.

We expect competition will increase as other established and
emerging companies enter our market, as new products and
technologies are introduced and as new competitors enter the
market. Microsoft recently has announced alliances with Pivotal
and Onyx, and we believe it is likely that Microsoft will enter
and may dominate our markets at some point in time with products
they develop and/or acquire. Increased competition may result in
price reductions, lower gross margins and loss of our market
share, any of which could materially adversely affect our
business, financial condition and operating results. Although we
believe we have advantages over our competitors in terms of the
comprehensiveness of our solution, there can be no assurance
that we can maintain our competitive position against current
and potential competitors.

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Sales

Interact products are sold in 67 countries worldwide by both our
own direct sales teams and through value added resellers.

SalesLogix

We market and sell SalesLogix through both our indirect business
partner channel and our direct sales force, depending generally
upon the size of the customer and the market.

Indirect Channels

We sell and implement our products through our business partner
channel of value added resellers, systems integrators, and
independent software vendors. Our business partners are
independent organizations that sell and market our products and
perform implementation, integration and customization services.
We actively recruit business partners through channel
development groups within the Company. More importantly, we
assist our business partners through comprehensive training and
support and cooperative marketing programs. All business
partners are required to undergo training and certification
procedures before being authorized to sell and implement our
products and must maintain minimum standards and sales volumes
to retain this authorization. Our business partners are also
required to register their sales opportunities with Interact, in
order to provide us with visibility into our sales pipeline. As
of December 31, 2000, we had 528 certified business
partners including 312 in the United States and 216 in 67 other
countries. Our business partners are generally local or regional
businesses with little national name recognition who deliver
industry-specific expertise. We plan to expand our international
presence through the recruitment of additional business partners.

We typically enter into reseller agreements with our business
partners under which they purchase our products and sell our
licenses to designated end-users. No ownership rights are
granted to our business partners on any intellectual property
relating to our products. End-user SalesLogix licenses are
included in our product materials, which are provided directly
to end-users by our business partners. The business partners are
solely responsible for determining retail prices. However, our
revenue from the sale of our products to a business partner is
based on a percentage of our list price and is independent of
the business partners ability to collect payment from an
end-user. In addition, we generally provide the ongoing
technical support and maintenance for our products and our
business partners are paid commissions on the support contracts
sold by them to the end-users. We have not granted exclusive
sales territories to our business partners, but may do so in the
future if a proposed distribution transaction merits such an
arrangement. Our business partners are not typically restricted
from offering products of our competitors.

We believe our business partners have a significant influence
over product choices by customers and that our relationship with
our business partners is an essential element in our marketing,
sales and implementation efforts. Through our business partner
network, we are able to provide customers with trained and
knowledgeable solution professionals who are available to
implement our systems locally. Many of our business partners
customize our systems to fit individual business needs and
develop industry-specific applications that integrate with and
extend the features of our products.

Direct Sales

We have established a targeted direct sales force to complement
our indirect sales channel and pursue larger opportunities,
typically companies with over $250 million in revenue, as
well as key strategic accounts in selected vertical markets. In
many instances, the accounts are large multi-national
organizations that are seeking to deploy the software into
multiple locations. As part of this effort, members of this team
are targeted at specific current customers that are seen as
major accounts to insure a high level of customer satisfaction
and generate additional revenues. As of December 31, 2000,
we employed six direct salespeople. We intend to more than
double the size of this team in 2001.

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Our direct sales cycles average 4 to 6 months from initial
contact to close. The average size of an order through the
direct selling channel tends to be significantly higher than
through our business partner channel.

Typically in direct transactions the Company signs a license
agreement directly with the customer. Pricing is based upon our
list price, in many cases, less a discount based upon seat
volumes. Delivery of the software tends to be either through our
professional services organization or large system integrators
that also develop customizations, train end users and integrate
to legacy systems.

ACT!

ACT! software is primarily sold through a two-tier distribution
model. We have agreements with software distributors that
purchase our products and sell them to retailers, resellers, and
ACT! Certified Consultants (ACCs).

We currently have distribution agreements with distributors
including Ingram Micro and Tech Data. Price is determined for
distributors based upon a margin off of our manufacturers
suggested retail price. No ownership rights are granted to the
distributors on any intellectual property relating to our
products. End-user shrink-wrap licenses are packaged, along with
manuals and the software in a box, which is delivered through
the channel. We generally provide ongoing technical support for
ACT! on a fee-for-service basis.

We also have a direct sales group consisting of 16 people
at December 31, 2000 who focus on selling large license
quantities to corporate users, which are fulfilled through the
distribution channels described above. Revenue from corporate
licenses represented 19% of ACT! license revenue in 2000.

Marketing

Our marketing programs include a variety of advertising, direct
marketing, telemarketing, events, public relations, web and
tele-seminar campaigns that are designed to reach target
prospects in the SOHO and mid-markets and cultivate
relationships with industry leaders. These programs are targeted
at key executives within these companies such as the vice
president of sales, vice president of marketing, chief
information officer and chief executive officer. As of
December 31, 2000, we employed 42 people in marketing,
organized generally around the areas of product marketing,
marketing communications, Internet and channel marketing.

Our marketing programs are designed to:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Increase brand awareness for our products  We have
	implemented a variety of brand awareness programs, including
	magazine and newspaper advertising, direct mail, public
	relations and trade shows. These programs have generated
	significant awareness for our products and a leading position in
	brand recognition surveys.                                                                                      
|
| |  | Generate leads for our channels  Through targeted
	profiling techniques and direct telemarketing calls from our own
	database as well as purchased lists we attempt to reach a
	significant percentage of our target audience on a quarterly
	basis. Through a variety of automated web and phone-based call
	scripts in our contact center, we are able to qualify and assign
	leads across our channels.             
|
| |  | Promote more efficient and effective partner-based sales
	cycles  To take advantage of the ease-of-use of our
	product and to improve selling productivity, we have deployed a
	web infrastructure that enables dynamic tele-seminars,
	user-driven product demonstrations and an information repository
	to automatically guide prospects and our business partners
	through key decision points in the selling cycle.

Research and Development

As of December 31, 2000, Interact employed 129 people in
research and development. This team is responsible for the
design, development and release of SalesLogix and ACT! products.
Research and development is organized into three groups:
development, quality assurance and documentation. Members from
each of these groups form separate product teams that work
closely with sales, marketing, business partners, customers and
prospects to better understand market needs and requirements.
When required, we

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Intellectual Property and Other Proprietary Rights

Our success depends in part on our ability to protect our
proprietary rights. To protect our proprietary rights, we rely
primarily on a combination of copyright, trade secret, patent
and trademark laws, confidentiality agreements with employees
and third parties and protective contractual provisions such as
those contained in license agreements with our business
partners, consultants, vendors and customers, although we have
not signed such agreements in every case. Despite our efforts to
protect our proprietary rights, unauthorized parties may copy
aspects of our products and obtain and use information that we
regard as proprietary. Other parties may breach confidentiality
agreements and other protective contracts we have entered into
and we may not become aware of, or have adequate remedies in the
event of, such breach. We employ shrink-wrap licenses designed
to restrict the unauthorized use of our products, but such
licenses may be difficult to enforce.

We pursue the registration of some of our trademarks and service
marks in the United States and in certain other countries, but
we have not secured registration of all our marks. In addition,
the laws of some foreign countries do not protect our
proprietary rights to the same extent as do the laws of the
United States and effective copyright, trademark and trade
secret protection may not be available in other jurisdictions.
We license proprietary rights to third parties. Such licensees
may not abide by compliance and quality control guidelines with
respect to such proprietary rights and may take actions that
would materially and adversely affect our business, financial
condition and operating results.

The information technology market is characterized by frequent
and substantial intellectual property litigation, which is often
complex and expensive and involves a significant diversion of
resources and uncertainty of outcome. We may need to litigate to
enforce and protect our intellectual property or to defend
against a claim of infringement or invalidity. We may be subject
to legal proceedings and claims from time to time in the
ordinary course of our business, including claims of alleged
infringement of third-party proprietary rights by our licensees
and us. In addition, we expect that software developers will be
increasingly subject to infringement claims as the number of
products and competitors in our industry grows and the
functionality of products in different industry segments
overlaps. Furthermore, former employers of our present and
future employees may assert claims that our employees have
improperly disclosed confidential or proprietary information to
us. If we discover that any elements of our products violate
third-party proprietary rights, we may be unable to obtain
licenses on commercially reasonable terms, if at all and to
avoid or settle litigation without substantial expense and
damage awards. Any claims relating to the infringement of
third-party proprietary rights, even if not meritorious, could
result in costly litigation, divert managements attention
and resources, cause product shipment delays or require us to
pay damages or enter into royalty or license agreements on terms
that are not advantageous to us. Any of these results could
materially adversely affect our business, financial condition
and operating results.

We rely on technology that we license from third parties,
including software that is integrated with internally developed
software and used in our products, to perform key functions.
Although we are generally indemnified against claims that such
third-party technology infringes the proprietary rights of
others, such indemnification is not always available for all
types of intellectual property rights and in some cases the
scope of such indemnification is limited. Even if we receive
broad indemnification, third-party indemnitors are not always
well capitalized and may not be able to indemnify us in the
event of infringement, resulting in substantial exposure to us.
Infringement or invalidity claims arising from the incorporation
of third-party technology and claims for indemnification from
our customers resulting from such claims, may be asserted or
prosecuted against us. Such claims, even if not meritorious,
could result in the expenditure of significant financial and
managerial resources in addition to potential product
redevelopment costs and delays and could materially adversely
affect our business, financial condition and operating results.

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Employees

As of December 31, 2000, we had a total of
554 employees worldwide, excluding independent contractors
and other temporary employees, but including 129 people in
research and development, 203 people in sales and
marketing, 146 people in professional services, customer
support and training and 76 people in general and
administrative services. Our future performance depends in
significant part on the continued service of our key technical,
sales, marketing and senior management personnel. The loss of
the services of one or more of our key employees could have a
material adverse effect on our business, financial condition and
operating results. Our future success also depends on our
continuing ability to attract, train and retain highly qualified
technical, sales, marketing and managerial personnel.
Competition for such personnel is intense. We cannot provide any
assurance that we can retain our key technical, sales, marketing
and managerial personnel in the future. None of our employees
are represented by a labor union and we consider our employee
relations to be good.

Important Factors That May Affect Our Business, Our Financial
Condition, Our Results Of Operations And Our Stock Price

Our limited operating history makes it difficult to evaluate
our strategy and forecast operating results.

We commenced operations in January 1996 and released our
first commercial version of SalesLogix in April 1997. We
acquired the ACT! product line on December 31, 1999.
Accordingly, we have a limited operating history, which makes it
difficult to evaluate our business strategy and forecast our
future operating results. The new, competitive, fragmented and
rapidly changing nature of our market increases these risks and
uncertainties. We cannot assure you that our business strategy
will be successful or that we will be able to accurately
forecast our future operating results.

We have a history of losses and expect to incur future
losses.

We incurred net losses in each quarter from our inception
through December 31, 2000. As of December 31, 2000, we
had an accumulated deficit of approximately $81.8 million. We
have not achieved profitability and expect to continue to incur
net losses through at least September 30, 2001. We expect
to continue to devote substantial resources to our product
development, sales, marketing, customer support activities, and
international expansion. As a result, we will need to generate
significant quarterly revenues to achieve and maintain
profitability. Although our revenues have increased over recent
quarters, we cannot assure you that we will realize sufficient
revenues to achieve and sustain profitability in any future
period.

Our future operating results are likely to fluctuate
significantly and may fail to meet or exceed the expectations of
securities analysts or investors, causing our stock price to
decline.

Our operating results have varied in the past, and we expect
that they may continue to fluctuate in the future. In addition,
our operating results are difficult to predict and are likely to
fluctuate significantly on a quarterly and an annual basis due
to a number of factors, many of which are outside of our
control. It is particularly difficult to predict the timing or
amount of our license revenues because our products are
typically shipped shortly after orders are received and
therefore the amount of unfilled orders for our products is
small. Furthermore, because of customer buying patterns that we
do not expect to change, we recognize a substantial portion of
our license revenues in the last month and often in the last
weeks or days of a quarter. Other factors that may contribute to
the difficulty of predicting our operating results include, but
are not limited to, the following:



| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| |  | rapidly changing economic conditions;                                               
|
| |  | the lengthiness and unpredictability of sales cycles for our
	products;             
|
| |  | the mix of revenues generated by product licenses and customer
	service and support;
|
| |  | the mix of sales channels through which our products are sold;                      
|
| |  | the effect of fluctuations in foreign currency on international
	sales;             

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| |   |                                                                                 
| | - | --------------------------------------------------------------------------------
| |  | new product announcements and introductions by our competitors;
	and            
|
| |  | our ability to develop, market and manage product transitions
	and acquisitions.

Our operating results have fluctuated significantly in the past
and will continue to fluctuate in the future, as a result of a
number of factors, many of which are outside our control. These
factors include:



| |   |                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | demand for our products and services;                                                                                                                  
|
| |  | size and timing of specific sales;                                                                                                                     
|
| |  | level of product and price competition;                                                                                                                
|
| |  | timing and market acceptance of new product introductions and
	product enhancements by us and our competitors;                                         
|
| |  | changes in pricing policies by us and our competitors;                                                                                                 
|
| |  | our ability to attract, hire, train and retain sales and
	consulting personnel to meet the demand, if any, for our
	products;                          
|
| |  | the length of sales cycles;                                                                                                                            
|
| |  | our ability to establish and maintain relationships with our
	business partners, third-party implementation services providers
	and strategic partners;
|
| |  | mix of distribution channels through which products are sold;                                                                                          
|
| |  | mix of international and domestic revenues;                                                                                                            
|
| |  | software defects and other product quality problems;                                                                                                   
|
| |  | personnel changes;                                                                                                                                     
|
| |  | general domestic and international economic and political
	conditions; and                                                                             
|
| |  | budgeting cycles of our customers.                                                                                                                     

We have in the past experienced delays in the planned release
dates of new software products or upgrades and have discovered
software defects in new products after their introduction. There
can be no assurance that new products or upgrades will be
released according to schedule, or that when released they will
not contain defects. Either of these situations could result in
adverse publicity, loss of revenues, delay in market acceptance
or claims by customers brought against us, any of which could
have a material adverse effect on our business, results of
operations and financial condition. In addition, the timing of
individual sales has been difficult for us to predict and large
individual sales have, in some cases, occurred in quarters
subsequent to those we anticipated. There can be no assurance
that the loss or deferral of one or more significant sales will
not have a material adverse effect on our quarterly operating
results.

Due to the foregoing factors, we believe that period-to-period
comparisons of our operating results should not be relied upon
as indicative of future performance.

We plan to increase our operating expenses to expand our product
development, sales, marketing and customer support activities
both domestically and internationally. We base our decisions
regarding our operating expenses on anticipated revenue trends
and many of our expenses are relatively fixed in the short term.
We may not be able to reduce our expenses if our revenues are
lower than anticipated, which could cause our operating results
to be below the expectations of public market analysts or
investors, causing the price of our common stock to fall.

We rely on a few key distributors for the ACT! product.

The majority of sales of the ACT! product historically have been
through a small number of distributors, including Ingram Micro,
Inc. and Tech Data Corp. The loss of any of the key ACT!
distribution relationships

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We face risks related to financing our business strategy.

We expect that the execution of our business strategy will
require substantial amounts of capital, and we expect to
experience net losses through at least September 30, 2001.
As of December 31, 2000, we had cash and cash equivalents
of $12.2 million and our working capital was $8.0 million.
Subsequent to December 31, 2000, we secured a $20 million
credit facility for working capital purposes. We anticipate that
these available funds, combined with our operating results and
available borrowing capacity on our credit line, will be
sufficient to finance our operating activities and capital
expenditures, including royalty payments to Symantec for the
ACT! acquisition, through December 31, 2001.

Due to a variety of factors, some of which are not within our
control, our financing needs may accelerate. In 2001, we may
require additional financing through a private placement of debt
and/or equity securities and/or secondary public offering of our
common stock Although we believe financing alternatives will be
available, there is no assurance that available financing will
be available on reasonable business terms or terms acceptable to
us, or that market conditions will permit any secondary public
offering on terms acceptable to us. In addition, issuing
additional equity securities will dilute current
stockholders percentage ownership, and incurring
substantial debt may impose restrictions that could disrupt our
ongoing business and increase our expenses. If we are unable to
obtain sufficient financing on terms acceptable to us, our
business, financial condition and operating results would be
materially adversely affected.

Our brand and business could be adversely affected if we are
not able to protect our domain names or acquire other relevant
domain names.

We have the rights to the Web domain name relating to our
brands. Governmental agencies and their designees generally
regulate the acquisition and maintenance of domain names. The
regulation of domain names in the United States and in foreign
countries is subject to change in the near future. As a result,
we may be unable to acquire or maintain relevant domain names in
the countries in which we conduct, or plan to conduct, business.
Furthermore, the relationship between regulations governing
domain names and laws protecting trademarks and similar
proprietary rights is unclear. Therefore, we may be unable to
prevent third parties from acquiring domain names that are
similar to, infringe upon, dilute or otherwise decrease the
value of our trademarks and other proprietary rights.

Customer buying patterns and sales force compensation may
make it difficult to predict future operating results.

Our revenues have tended to be stronger in the fourth quarter
than in each of the first three quarters of a year, making it
more difficult to predict future operating results. We believe
that these fluctuations are caused primarily by customer buying
patterns, which are often influenced by year-end budgetary
pressures as well as by our sales force compensation policies
and those of our business partners, which tend to reward sales
personnel who meet or exceed year-end sales quotas. We expect
this trend to continue for the foreseeable future.

Our operating results primarily rely on market acceptance of
our SalesLogix and ACT! products.

Our future financial performance will depend substantially on
our ability to develop and maintain market acceptance of
SalesLogix and ACT! and new and enhanced versions of SalesLogix,
ACT!, and other new products. License revenues from our
SalesLogix product accounted for approximately 94% and 49% of
our total license revenues in 1999 and 2000. License revenue
from our ACT! product that was acquired on December 30,
1999 accounted for 51% of our total license revenue in 2000. We
expect product license revenues from SalesLogix and ACT! to
continue to account for a significant portion of our revenues
for the foreseeable future. As a result, factors adversely
affecting the pricing or demand for SalesLogix or ACT!, such as
competition, technological change or evolution in customer
preferences, could materially adversely affect

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Our operating results primarily depend upon the sale and
implementation of our products by our business partners.

Our success will continue to depend significantly on our ability
to develop and cultivate relationships with our resellers, whom
we refer to as our business partners, as well as on the success
of their sales efforts. Our sales and distribution strategy
focuses primarily on developing and expanding indirect
distribution channels through our network of business partners
and, to a lesser extent, expanding our direct sales
organization. Sales to or initiated by our business partners
accounted for 76% and 78% of SalesLogix license revenues in 1999
and 2000, respectively. The relatively small size of our
business partners may restrict their ability to timely install
and implement our products during periods when they are
especially busy, which may create a service backlog that
adversely affects our revenues during these periods. We are
currently investing, and intend to continue to invest
significantly, to support and expand our indirect distribution
channel. We cannot assure you that we will be able to retain our
existing business partners or add new business partners to
market, sell, implement and support our products effectively.
Our failure to do so could materially and adversely affect our
business.

Our reliance on indirect sales channels makes it more
difficult to maintain quality control and forecast sales.

Our focus on indirect distribution may adversely affect our
business, financial condition and operating results if we are
unable to:



| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| |  | adequately train and certify a sufficient number of business
	partners;                           
|
| |  | provide adequate incentives to our business partners;                                             
|
| |  | provide adequate service and support to our end users through
	our business partners;             
|
| |  | retain company and brand loyalty with our business partners and
	end user customers;              
|
| |  | manage conflict among our business partners, whose contracts
	with us are generally non-exclusive;
|
| |  | manage collection of receivables from business partners on a
	timely basis; or                    
|
| |  | manage inventory levels in ACT!s retail distribution
	channel.                                   

Our business partners may handle competing products,
diverting attention away from our products.

Many of our business partners also sell products that compete
with our products and we cannot assure you that our business
partners will continue to devote the resources necessary to
provide us with effective sales, marketing and technical
support. If our business partners do not continue to support our
products, our business may be materially and adversely affected.

If we experience difficulty expanding our direct sales
capability, we may not be able to expand our business as
planned.

We have a direct sales organization to focus on key strategic
accounts and larger opportunities, and we plan to expand the
size of our direct sales force. We have experienced significant
turnover in our direct sales force, and we expect to continue to
experience turnover in the future. We have limited experience in
maintaining a direct sales force. Our expanded sales
organization may not be able to compete successfully against the
significantly more extensive and well-funded sales and marketing
operations of many of our current or potential competitors. In
addition, expansion of our direct sales force may lead to
conflict with our business partners. We have experienced and
continue to experience difficulty in recruiting qualified sales
personnel. We cannot assure you that we will be able to
effectively maintain and expand our direct sales force.

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We face intense competition that could adversely affect our
business.

The market for relationship management software solutions is
intensely competitive, fragmented and subject to rapid
technological change. Companies focused on providing contact
management and CRM solutions can be broadly segmented into the
following groups:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Traditional CRM and Sales Automation Vendors such as Onyx, Pivotal and Siebel Systems for large
	enterprise organizations; Great Plains for mid-sized
	organizations; and Goldmine for small organizations. These
	companies generally seek to provide automated solutions for
	traditional sales channels through client/server solutions, as
	well as marketing and customer service products.
|
| |  | E-commerce application vendors such as
	Broadvision, Calico Commerce, Firepond, Kana, and Selectica.
	These companies target large enterprise organizations and seek
	to provide advanced selling applications for e-commerce that
	focus on specific aspects of customer relationships, online
	product configuration or buying process.                                                       
|
| |  | Hosted Web-based Sales Automation Applications such as Salesforce.com and Upshot.com. These companies
	provide hosted Web-based applications for sales forces of small
	to mid-sized companies.                                                                                                                                                                                                 

We believe that the principal competitive factors in our market
include, or are likely to include, product performance and
features, price, ease-of-use, quality of support and service,
time to implement, ease of customization, sales and distribution
capabilities, strength of brand name and overall cost of
ownership. We believe that we compete effectively with our
competitors with respect to these factors. However, some of our
competitors have longer operating histories, significantly
greater resources and greater name recognition. They also may be
able to devote greater resources to the development, promotion
and sale of their products than we can to ours, which could
allow them to respond more quickly than we can to new or
emerging technologies and changes in customer requirements. We
cannot assure you that our competitors will not offer or develop
products that are superior to our products or that achieve
greater market acceptance.

We expect that competition will increase as other established
and emerging companies enter our market, as new products and
technologies are introduced and as new competitors enter the
market. Microsoft recently has announced alliances with Pivotal
and Onyx, and we believe it is likely that Microsoft will enter
and may dominate our markets at some point in time with products
they develop and/or acquire. Increased competition may result in
price reductions, lower gross margins and loss of our market
share, any of which could materially adversely affect our
business, financial condition and operating results. Although we
believe we have advantages over our competitors in terms of the
comprehensiveness of our solution, there can be no assurance
that we can maintain our competitive position against current
and potential competitors.

The market for CRM solutions is emerging and broad market
acceptance of our products is uncertain.

The market for CRM products is still emerging and continued
growth in demand for and acceptance of CRM products remains
uncertain. The success of our business in the face of intense
competition will depend on growth of the overall market for
sales automation software and related products. We have spent,
and will continue to spend, considerable resources targeting the
mid-market segment of the CRM market, educating potential
customers about our products and sales automation software
solutions in general and developing products that are compatible
with Microsofts technology and the Internet. However, even
with these efforts, sales of our products may not increase
unless the market for our products continues to grow. If the
market for our products does not grow or grows more slowly than
we anticipate, or the mid-market segment turns out to have
significantly less potential than we estimate, our business,
financial condition and operating results would be materially
and adversely affected.

Our operating results depend on continued market acceptance
of Microsoft technology.

We have designed our products to operate using Microsoft
technologies, including Windows 2000, Windows NT, Windows 98,
Microsoft Commerce Server and SQL Server. If the market
acceptance of Microsoft technology declines or we are unable to
timely enhance our products and technology to be compatible with
new developments in Microsofts technology, our business,
financial condition and operating

17



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Antitrust actions initiated by federal and state regulatory
authorities have resulted in a verdict against Microsoft. As a
result of the verdict, the government has proposed that
Microsoft be divided into two separate companies. Microsoft has
appealed the verdict to the United States District Court for the
District of Columbia. Any outcome of these actions that weakens
the competitive position of Microsoft could adversely affect the
market for our products.

Our product strategy depends on the continued use and
expansion of the Internet.

Increased sales of our software and related products will depend
on the expansion of the Internet as a leading platform for
commerce and communication. If the Internet does not continue to
expand as a widespread communications medium and commercial
marketplace, our software may not be commercially successful.
The Internet infrastructure may not be able to support the
demands placed on it by continued growth. As a result, the
Internet could lose its viability due to delays in the
development or adoption of new equipment, standards and
protocols to handle increased levels of Internet activity,
security, reliability, and accessibility. Additional concerns
that could inhibit the growth of the Internet and its use by
business as a medium for communications and commerce include:



| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | concerns about the security of transactions over the Internet;                                                                                              
|
| |  | concerns about the privacy of data collected and stored
	regarding transactions over the Internet;                                                          
|
| |  | the possibility of government laws and regulations restricting
	the use of information collected from communications or
	transactions over the Internet; and
|
| |  | the potential that Internet transactions will become subject to
	taxation by the government.                                                                

We may not be able to respond effectively to customer needs,
technological changes, or advances introduced by our
competitors, and our products could become obsolete.

The market in which we compete is characterized by rapid change
based on customer needs, technological developments and advances
introduced by our competitors. If new industry standards emerge
or new technologies are introduced, existing products can become
obsolete. In addition, new technologies may change the way
software is sold or delivered. Therefore, in order to be
successful, we must continue to enhance our current product line
and develop new products that successfully respond to the
changing needs of customers and the marketplace. We may not be
able to successfully develop the products necessary to respond
to these changes or to integrate new applications with our
existing products. If we delay release of our software or
product enhancements, or if they fail to achieve market
acceptance when released, it could harm our reputation and our
ability to attract and retain customers and could have a
negative effect on our revenue.

We depend on key personnel for our future success and we may
not be able to recruit and retain the personnel we need to
succeed.

Our success depends on the continued service of our executive
officers and on the continued efforts and abilities of our key
technical, customer support, sales, and management personnel. In
particular, we believe that our future success is highly
dependent on Patrick M. Sullivan, our Chief Executive
Officer. We do not have employment agreements with the majority
of our executive officers and management personnel. As a result,
many of our key employees are not obligated to continue their
employment with us and could leave at any time. In addition,
except for Mr. Sullivan, none of our executive officers or
key management is subject to non-compete agreements. We have
experienced significant management changes at the executive
officer level in the past, and any such changes in the future
could materially and adversely affect our business, financial
condition, and operating results.

18



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Competition for highly skilled employees with technical,
management, marketing, sales, product development, and other
specialized training is intense, and there can be no assurance
that we will be successful in attracting and retaining such
personnel. In addition, we may experience increased costs in
order to attract and retain skilled employees. The loss of any
key technical, customer support, sales and marketing personnel,
especially if lost to competitors, could materially and
adversely affect our business, financial condition, and
operating results.

Our ability to increase revenues will depend in part on
successful expansion of our international operations.

To date, we have sold our products internationally primarily
through our business partners located in other countries and
have supported our international customers with our domestic
customer support staff. We currently have subsidiaries in the
United Kingdom, Germany, Australia, and Singapore. We intend to
continue to expand our international operations and to enter new
international markets, both through existing and new business
partners and, to a lesser extent, through direct sales. This
expansion will require significant management attention and
financial resources and may not produce desired levels of
revenue. We currently have limited experience in marketing and
distributing our products internationally and have developed a
limited number of non-U.S. versions of our products. In
addition, our international business is subject to inherent
risks that could materially and adversely affect our business,
financial condition and operating results, including:



| |   |                                                                                 
| | - | --------------------------------------------------------------------------------
| |  | longer accounts receivable collection cycles;                                   
|
| |  | difficulties in managing operations across disparate geographic
	areas;         
|
| |  | difficulties in enforcing agreements and intellectual property
	rights;         
|
| |  | difficulties in localizing our products for different regions;                  
|
| |  | fluctuations in local economic, market and political conditions;                
|
| |  | need for compliance with a wide variety of U.S. and foreign
	export regulations;
|
| |  | potential adverse tax consequences; and                                         
|
| |  | currency exchange rate fluctuations.                                            

We are still assessing the impact and cost that conversion to
the Euro will have on both our internal systems and the products
we sell. We will attempt appropriate corrective actions based on
the results of our assessment. This issue and its related costs
could materially adversely affect our business, financial
condition, and operating results.

We may not recognize revenue when anticipated, which may
cause our operating results to vary widely.

The sales cycles for our products are variable, typically
ranging between a few weeks to six months from initial contact
with the customer to the signing of a license agreement,
although occasionally sales require substantially more time.
Delays in executing customer contracts may affect revenue
recognition and may cause our operating results to vary widely.
We believe that an enterprises decision to purchase CRM
software is discretionary, involves a significant commitment of
its resources and is influenced by its budget cycles. To
successfully sell our products, our business partners and we
generally must educate our potential customers regarding the use
and benefit of our products, which can require significant time
and resources. Consequently, the period between initial contact
and the purchase of our products is often long and subject to
delays associated with the lengthy budgeting, approval and
competitive evaluation processes that typically accompany
significant capital expenditures.

Our ability to compete effectively depends upon third parties
continuing to deliver, support and enhance current and new
versions of software incorporated into our products.

We incorporate into our products software that is licensed to us
by third parties, and we intend to expand this practice in the
future. Because our products incorporate, or are created using,
software developed and

19



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Our products may suffer from defects or errors, resulting in
additional expenses or lost sales

Software products as complex as ours frequently contain errors
or defects, especially when first introduced or when new
versions are released. In some cases, we have had to delay
commercial release of versions of our products until software
problems were corrected and in some cases have provided product
enhancements to correct errors in released products. Our current
and future products or releases may not be free from errors
after commercial shipments have begun. Any errors that are
discovered after commercial release could result in loss of
revenues or delay in market acceptance, diversion of development
resources, damage to our reputation or increased service and
warranty costs, all of which could materially adversely affect
our business, financial condition and operating results.

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

We may be unable to adequately protect our proprietary rights
or avoid infringement of third party proprietary rights, which
could result in costly litigation

Our success depends in part on our ability to protect our
proprietary rights from copying, infringement or use by
unauthorized parties. Despite our efforts to protect our
proprietary rights, unauthorized parties may copy aspects of our
products and obtain and use information that we regard as
proprietary. Other parties may breach confidentiality agreements
and other protective contracts with us and we may not become
aware of, or have adequate remedies in the event of, such
breach. To protect our proprietary rights, we rely primarily on
a combination of copyright, patent, trade secret and trademark
laws, confidentiality agreements with employees and third
parties and protective contractual provisions such as those
contained in license agreements with consultants, business
partners and customers, although we have not signed such
agreements in every case. We employ shrink-wrap licenses
designed to restrict the unauthorized use of our products but
such licenses may be difficult to enforce. In addition, it may
be more difficult to protect our proprietary rights outside the
United States. We also cannot assure you that a third party will
not assert a claim that our technology violates its intellectual
property rights. As the number of software products in our
market increases and product functionalities increasingly
overlap, companies such as ours may become increasingly subject
to infringement claims. Any claims relating to the infringement
of proprietary rights of third parties, regardless of their
merit, could result in costly litigation, divert our
managements attention and our companys resources,
cause us to delay product shipments or require us to pay damages
or enter into royalty or license agreements on terms that are
not advantageous to us. Any of these results could materially
and adversely affect our business, financial condition and
operating results.

Our executive officers and directors will be able to
substantially influence matters requiring stockholder
approval.

As of December 31, 2000, the executive officers, directors
and entities affiliated with them beneficially own approximately
15% of our outstanding common stock. These stockholders may be
able to exercise

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Our certificate of incorporation and bylaws and Delaware law
contain provisions that could discourage a takeover.

Certain provisions of our restated certificate of incorporation
and bylaws and Delaware law may discourage, delay or prevent a
merger or acquisition that a stockholder may consider favorable.
These provisions:



| |   |                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | authorize our board of directors to issue up to 20,000,000
	additional shares of preferred stock;                                                                          
|
| |  | limit the persons who may call special meetings of stockholders;                                                                                                           
|
| |  | prohibit stockholder action by written consent;                                                                                                                            
|
| |  | require advance notice for nominations for election of our board
	of directors or for proposing matters that can be acted on by
	stockholders at stockholders meetings; and
|
| |  | establish a classified board of directors as of the first annual
	meeting of stockholders following our initial public offering.                                           

Changes in accounting standards could affect our future
operating results.

We recognize revenues from software license agreements based
upon the following criteria:



| |   |                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------
| |  | persuasive evidence of an arrangement exists, such as an
	executed license agreement, unconditional purchase order or
	contract;
|
| |  | delivery of the product has occurred;                                                                                           
|
| |  | collection of the resulting receivable is probable; and                                                                         
|
| |  | the fee is fixed or determinable based upon vendor-specific
	objective evidence of the elements of the arrangement.             

We recognize customer support or maintenance revenues ratably
over the contract term, typically one year, and recognize
revenues for consulting and training services as such services
are performed.

Statement of Position (SOP) 97-2, Software
Revenue Recognition, was issued in October 1997 by
the American Institute of Certified Public Accountants and
amended by SOP 98-4 and SOP 98-9. We adopted SOP 97-2
effective January 1, 1998. Based on our interpretation of
SOP 97-2, SOP 98-4 and SOP 98-9, we believe our
current revenue recognition policies and practices are
consistent with these pronouncements. Future pronouncements
related to software revenue recognition could lead to
unanticipated changes in our current accounting practices. These
changes could materially adversely affect our business,
financial condition and operating results. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations.

Additionally, the accounting standard setters, including the
Securities and Exchange Commission and the Financial Accounting
Standards Board, continue to review accounting standards. Any
changes to these standards or any other accounting standards
could materially adversely affect our operating results.

The price of our stock may continue to be volatile.

Since our initial public offering in May 1999, our stock
price has fluctuated significantly. The trading price of our
common stock is subject to significant fluctuations in response
to variations in quarterly operating results, announcements of
technological advancements or new products by us or our
competitors, changes in revenue and earnings estimates by
securities analysts, general conditions in the software and
computer industries, and other events and factors affecting the
economy as a whole. In addition, the stock market in

21



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Security breaches could hurt our business and reputation.

Our business strategy involves users transmitting confidential
data over the Internet. Our license agreements with our
customers disclaim responsibility for the security of
confidential data and have contractual disclaimers and
indemnities for any damages claimed against us. However, if
unauthorized parties are successful in obtaining confidential
information from users of our products, our reputation and
business may be damaged, and, if our contractual disclaimers and
indemnities are unenforceable, we may be subject to liability
for the security breach.




Item 2.  Properties

Our principal administrative, sales, marketing, support and
research and development facilities are located in approximately
66,000 square feet of space in Scottsdale, Arizona and our lease
expires on July 31, 2004. We have an additional development
facility located in approximately 37,000 square feet in
Scottsdale, Arizona, a development facility located in
approximately 18,000 square feet in San Jose, California, and a
call center located in approximately 14,000 square feet in
Eugene, Oregon. We also maintain international offices in
England, Germany, Australia, and Singapore.




Item 3.  Legal Proceedings

We are not a party to any legal proceedings that, if adversely
determined, would have a material adverse effect on our
business, financial condition and operating results.




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

None.

22



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##### Table of Contents






PART II




Item 5.  Market for Registrants Common
Stock and Related Stockholder Matters

Our common stock is traded on the Nasdaq National Market under
the symbol IACT. At March 22, 2001, there were
251 holders of record of our common stock.

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

We completed an initial public offering of our common stock in
May 1999. Prior to our initial public offering, there was
no public market for our stock. The following table sets forth,
for each period indicated, the high and low closing prices for
our common stock on the Nasdaq National Market.

|                             |                                      |      |   |        |  |  |   |        | 
|---------------------------- | ------------------------------------ | ---- | - | ------ |  |  | - | ------ | 
|                             |                                      | High |   | Low   
|                             |                                      |      |   |       
|Year Ended December 31, 2000 |                                      |      |   |        |  |  |   |       
|                            
|                            
|                            
|                            
|                             | 4th quarter                          |      | $ | 10.25  |  |  | $ | 5.813  | 
|                            
|                            
|                            
|                            
|                             | 3rd quarter                          |      | $ | 14.875 |  |  | $ | 9.125  | 
|                            
|                            
|                            
|                            
|                             | 2nd quarter                          |      | $ | 25.50  |  |  | $ | 11.563 | 
|                            
|                            
|                            
|                            
|                             | 1st quarter                          |      | $ | 41.125 |  |  | $ | 25.00  | 
|                            
|                            
|                            
|                            
|                            
|Year Ended December 31, 1999 |                                      |      |   |        |  |  |   |       
|                            
|                            
|                            
|                            
|                             | 4th quarter                          |      | $ | 42.375 |  |  | $ | 20.25  | 
|                            
|                            
|                            
|                            
|                             | 3rd quarter                          |      | $ | 25.438 |  |  | $ | 14.125 | 
|                            
|                            
|                            
|                            
|                             | 2nd quarter (beginning May 27, 1999) |      | $ | 14.875 |  |  | $ | 9.00   | 

During the quarter ended December 31, 2000, we issued and
sold (i) 114,668 shares of our common stock registered on
Form S-8 to employees pursuant to the exercise of stock
options under our 1996 Equity Incentive Plan in exchange for an
aggregate purchase price of $53,963, (ii) 31,405
unregistered shares of our common stock to former employees of
Opis Corporation pursuant to the exercise of options we assumed
in connection with our acquisition of Opis in exchange for an
aggregate purchase price of $40,198, and (iii) 1,167
unregistered shares of our common stock to our business partners
pursuant to the exercise of stock options under our 1998
Business Partner Stock Option Plan in exchange for an aggregate
purchase price of $700. The options were granted in
consideration of these individuals services to Interact
or, in the case of former employees of Opis, in consideration of
services rendered to Opis. In issuing the foregoing unregistered
securities, we relied on an exemption from registration pursuant
to Rule 701 under Section 3(b) of the Securities Act.

On May 27, 1999, the Companys initial public offering
registered on Form S-1, file number 333-75353 became
effective. During the year ended December 31, 2000, the
Company used approximately $6.0 million of the net proceeds from
the offering to fund working capital needs, approximately $8.0
million of the net proceeds from the offering to purchase office
and computer equipment, approximately $15.0 of the net proceeds
for principal payments on a loan, and approximately $1.0 million
of the net proceeds for payments on capital lease obligations.




Item 6.  Selected Consolidated Financial
Data

In the table below, we provide you with selected consolidated
financial data of Interact. We have prepared this information
using the historical consolidated financial statements of
Interact for the three years ended December 31, 2000. When
you read this selected consolidated financial data, it is
important that you read along with it the historical financial
statements and related notes included in this report, as well as
the section of this report titled Managements
Discussion and Analysis of Financial Condition and Results of
Operations. Historical results are not necessarily
indicative of future results. See Note 1 of Notes to
Consolidated Financial Statements for an explanation of the
method used to calculate basic and diluted net loss per share.

23



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|                                                      |                                                       |                                       |                          |        |        |         |        |        |        |        |        |        |        |        | 
|----------------------------------------------------- | ----------------------------------------------------- | ------------------------------------- | ------------------------ | ------ | ------ | ------- | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------ | 
|                                                      |                                                       |                                      
|                                                      |                                                       | Year Ended December 31,              
|                                                      |                                                       |                                      
|                                                      |                                                       | 2000                                  |                          | 1999   |        | 1998   
|                                                      |                                                       |                                       |                          |        |        |        
|                                                      |                                                       |                                      
|                                                      |                                                       | (In thousands, except per share data)
|                                                     
|                                                     
|                                                     
|                                                     
|CONSOLIDATED STATEMENT OF OPERATIONS DATA:            |                                                       |                                       |                          |        |        |         |        |        |        |        |        |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Revenues:                                             |                                       |                          |        |        |         |        |        |        |        |        |        |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                       | Licenses                              |                          | $      | 85,004 |         |        | $      | 24,005 |        |        | $      | 10,105 |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                       | Services                              |                          |        | 22,646 |         |        |        | 12,290 |        |        |        | 5,538  |       
|                                                      |                                                       |                                       |                          |        |        |         |        |        |        |        |        |       
|                                                      |                                                       |                                       | Total revenues           |        |        | 107,650 |        |        |        | 36,295 |        |        |        | 15,643 | 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Costs of revenues:                                    |                                       |                          |        |        |         |        |        |        |        |        |        |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                       | Licenses                              |                          |        | 8,991  |         |        |        | 1,755  |        |        |        | 604    |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      |                                                       | Services                              |                          |        | 17,255 |         |        |        | 7,872  |        |        |        | 4,299  |       
|                                                      |                                                       |                                       |                          |        |        |         |        |        |        |        |        |       
|                                                      |                                                       |                                       | Total costs of revenues  |        |        | 26,246  |        |        |        | 9,627  |        |        |        | 4,903  | 
|                                                      |                                                       |                                       |                          |        |        |         |        |        |        |        |        |       
|Gross profit                                          |                                                       |                                       | 81,404                   |        |        |         | 26,668 |        |        |        | 10,740 |       
|                                                     
|                                                     
|                                                     
|                                                     
|Operating expenses:                                   |                                                       |                                       |                          |        |        |         |        |        |        |        |        |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Sales and marketing                                   |                                       |                          | 56,717 |        |         |        | 20,292 |        |        |        | 10,077 |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Research and development                              |                                       |                          | 24,600 |        |         |        | 6,921  |        |        |        | 3,845  |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | General and administrative                            |                                       |                          | 14,340 |        |         |        | 3,559  |        |        |        | 2,151  |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Amortization of acquisition related intangible assets |                                       |                          | 20,112 |        |         |        | 4,379  |        |        |        | 1,436  |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Restructuring charge                                  |                                       |                          | 10,000 |        |         |        |       |        |        |        |       |       
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Warrant expense                                       |                                       |                          | 394    |        |         |        |       |        |        |        |       |       
|                                                      |                                                       |                                       |                          |        |        |         |        |        |        |        |        |       
|                                                      |                                                       |                                       | Total operating expenses |        |        | 126,163 |        |        |        | 35,151 |        |        |        | 17,509 | 
|                                                      |                                                       |                                       |                          |        |        |         |        |        |        |        |        |       
|Loss from operations                                  |                                                       |                                       | (44,759                  | )      |        |         | (8,483 | )      |        |        | (6,769 | )     
|                                                     
|                                                     
|                                                     
|                                                     
|Interest and other income (expense), net              |                                                       |                                       | (12,161                  | )      |        |         | 977    |        |        |        | 130    |       
|                                                      |                                                       |                                       |                          |        |        |         |        |        |        |        |        |       
|Net loss                                              |                                                       | $                                     | (56,920                  | )      |        | $       | (7,506 | )      |        | $      | (6,639 | )     
|                                                      |                                                       |                                       |                          |        |        |         |        |        |        |        |        |       
|Basic and diluted net loss per share                  |                                                       | $                                     | (2.88                    | )      |        | $       | (0.60  | )      |        | $      | (1.76  | )     
|                                                      |                                                       |                                       |                          |        |        |         |        |        |        |        |        |       
|Weighted average shares outstanding-basic and diluted |                                                       |                                       | 19,785                   |        |        |         | 12,578 |        |        |        | 3,771  |       
|                                                      |                                                       |                                       |                          |        |        |         |        |        |        |        |        |       

|                                                                                                                    |  |                    |         |      |  |      |         |  |  |   |        | 
|------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | ---- |  | ---- | ------- |  |  | - | ------ | 
|                                                                                                                    |  |                   
|                                                                                                                    |  | As of December 31,
|                                                                                                                    |  |                   
|                                                                                                                    |  | 2000               |         | 1999 |  | 1998
|                                                                                                                    |  |                    |         |      |  |     
|                                                                                                                    |  |                   
|                                                                                                                    |  | (In thousands)    
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|CONSOLIDATED BALANCE SHEET DATA:                                                                                    |  |                    |         |      |  |      |         |  |  |   |        | 
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Cash and cash equivalents                                                                                           |  | $                  | 12,171  |      |  | $    | 60,795  |  |  | $ | 11,377 | 
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Working capital                                                                                                     |  |                    | 7,950   |      |  |      | 49,878  |  |  |   | 10,843 | 
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Total assets                                                                                                        |  |                    | 121,164 |      |  |      | 164,883 |  |  |   | 23,974 | 
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Long-term debt, net present value of Symantec royalty payments
	and capital lease obligations, less current portion |  |                    | 55,345  |      |  |      | 57,371  |  |  |   | 1,241  | 
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|                                                                                                                   
|Total stockholders equity                                                                                          |  |                    | 20,360  |      |  |      | 75,318  |  |  |   | 16,601 | 






Item 7.  Managements Discussion and
Analysis of Financial Condition and Results of Operations


The following Managements Discussion and Analysis of
Financial Condition and Results of Operations should be read in
conjunction with the Consolidated Financial Statements of
Interact and the Notes. Our discussion contains forward-looking
statements based upon current expectations that involve risks
and uncertainties, such as our plans, objectives, expectations
and intentions. Interacts actual results and the timing of
events could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors,
including those set forth under Risk Factors,
Business and elsewhere in this annual report.

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Overview

Interact Commerce Corporation is a leading provider of customer
relationship management (CRM) software for small and mid-sized
organizations. The company builds products that are easy to use,
quick to deploy, and provide anytime, anywhere access to
critical information. Our solutions are flexible and reliable
and are designed to provide our customers with a low total cost
of ownership and a rapid return on investment. The
companys products include SalesLogix, a mid-market CRM
leader used by over 3,300 companies; and ACT!, the best-selling
contact manager used by more than 3.2 million professionals and
11,000 corporations. Our software solutions are sold in over
67 countries worldwide through value added resellers and by
our direct sales force.

We were incorporated in September 1995 and commenced
operations in January 1996. Prior to April 2000, we were
known as SalesLogix Corporation. From January 1996 until
April 1997, our operating activities related primarily to
research and development and the initial development of our
independent business partner channel. In April 1997, we
released the first commercial version of SalesLogix, our
client-server based sales automation solution.

In December 1997, we acquired Opis Corporation in a merger
transaction, a company engaged in the development, marketing,
and selling of customer support software primarily to mid-sized
organizations. We paid $801,559 in cash, issued 1,228,654 shares
of Series D convertible preferred stock and granted options
to purchase 96,836 shares of Series D convertible preferred
stock. The transaction was recorded under the purchase method of
accounting and the results of operations of Opis and the fair
value of the assets acquired and liabilities assumed were
included in our consolidated financial statements beginning on
the acquisition date. In connection with this acquisition, we
recorded $5.9 million in capitalized technology and other
intangible assets that are being amortized over periods of up to
five years.

In April 1999, we acquired Enact Incorporated in a merger
transaction. Enact was a privately held provider of sales
configuration software for managing product catalogs and
marketing encyclopedias and generating proposals, quotes and
orders. In connection with the Enact acquisition, we issued
609,424 shares of our common stock, of which 201,893 shares are
restricted subject to three year monthly vesting based upon the
continued employment of the officers of Enact. We paid $4.2
million in cash for merger consideration, plus transaction
expenses and repayment of Enacts debt. We also entered
into employment agreements with officers of Enact in connection
with the acquisition. The transaction was recorded under the
purchase method of accounting and the results of operations of
Enact and the fair value of the assets acquired and liabilities
assumed are included in our consolidated financial statements
beginning on April 30, 1999. In connection with this
acquisition, we recorded approximately $8.8 million in
capitalized technology and other intangible assets that will be
amortized over three years, and expensed approximately $900,000
of in-process research and development based upon an independent
appraisal.

Through December 31, 1999, we derived revenues principally
from the sale of software licenses for our SalesLogix line of
products and related fees for maintenance, technical support,
consulting and training services. We market and sell our
SalesLogix products primarily through our business partners and
to a lesser extent through our direct sales force. Sales to or
initiated by our business partners accounted for 76% and 78% of
license revenues in 1999 and 2000, respectively, and we expect
that a substantial majority of our license revenues will
continue to be generated from sales to our business partners.
The contractual arrangements we enter into with our business
partners provide for license fees payable to us based upon a
percentage of our list price.

We sell our SalesLogix line of products under perpetual licenses
and recognize license revenues when all of the following
conditions are met: an executed license agreement, unconditional
purchase order or contract has been received; the product has
been delivered to the customer; collection of the receivable is
deemed probable; and the fee is fixed or determinable based upon
vendor specific objective elements of the arrangements.
Maintenance and technical support revenues are recognized
ratably over the contract term, typically one year. Revenues for
consulting and training services are recognized as such services
are provided.

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On December 31, 1999, we acquired the ACT! product line and
related business from Symantec Corporation pursuant to an
agreement dated December 6, 1999, as amended and closed on
December 31, 1999. Under the terms of the agreement, we
acquired an exclusive, worldwide license to ACT! and an option
to purchase the product line at the end of the four year license
term for an aggregate purchase price of $60.0 million in cash,
plus 623,247 shares of SalesLogix common stock valued at $20.0
million. The transaction was recorded under the purchase method
of accounting and the results of operations of ACT! and the fair
value of the assets acquired and liabilities assumed are
included in our consolidated financial statements beginning on
December 31, 1999. In connection with this acquisition, we
recorded approximately $61.9 million in capitalized technology
and other intangible assets that will be amortized over four
years. The cash portion of the purchase price has been
discounted at 22.4% to reflect the Companys borrowing rate
in a simultaneous third party transaction.

ACT! is a shrink-wrapped product that is sold through a two-tier
retail distribution channel. We will recognize ACT! revenue upon
persuasive evidence of an arrangement, delivery of software to
the customer, determination that there are no significant
post-delivery obligations, and a probable collection of a fixed
or determinable fee. Product revenue related to all distribution
channel inventory in excess of defined in inventory levels in
such channels will be deferred. Revenue related to significant
post-contract support agreements (generally product maintenance
and upgrade insurance) will be deferred and recognized over the
period of the arrangement.

On December 31, 1999, we received net proceeds of $25.9
million from the sale of senior subordinated debt. We paid a 1%
commitment fee on the subordinated debt and issued warrants to
purchase 841,107 shares of our common stock at $28.75 per share
to the lenders. The fair value of these warrants, determined
using the Black Scholes method, as well as the commitment fee,
have been recorded as a discount to the debt and will be
amortized to interest expense using the interest method over the
term of the loan. In October 2000, we restructured our
operations to focus around the SalesLogix and ACT! brands and to
eliminate our previously announced Internet.com operation. In
connection with this restructuring, we recorded a charge of
$10.0 million.

On March 22, 2001, we obtained a $20.0 million working
capital line of credit. Borrowings under this line of credit are
subject to available collateral and require maintenance of
certain financial and operation covenants.

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Historical Results of Operations

The following table sets forth historical operating results for
Interact as a percentage of total revenues. We believe that
period-to-period comparisons of our operating results may not be
indicative of results for any future period.

|                               |                                                       |                              |       |      |       |      |       |      |       |  |       |      |       | 
|------------------------------ | ----------------------------------------------------- | ---------------------------- | ----- | ---- | ----- | ---- | ----- | ---- | ----- |  | ----- | ---- | ----- | 
|                               |                                                       |                             
|                               |                                                       | Percentage of Total Revenues
|                               |                                                       | Year Ended December 31,     
|                               |                                                       |                             
|                               |                                                       | 2000                         |       | 1999 |       | 1998
|                               |                                                       |                              |       |      |       |     
|Revenues:                      |                                                       |                              |       |      |       |      |       |      |       |  |       |     
|                              
|                              
|                              
|                              
|                               | Licenses                                              |                              |       | 79.0 | %     |      |       | 66.1 | %     |  |       | 64.6 | %    
|                              
|                              
|                              
|                              
|                               | Services                                              |                              |       | 21.0 |       |      |       | 33.9 |       |  |       | 35.4 |      
|                               |                                                       |                              |       |      |       |      |       |      |       |  |       |     
|                               |                                                       | Total revenues               |       |      | 100.0 |      |       |      | 100.0 |  |       |      | 100.0 | 
|                              
|                              
|                              
|                              
|Costs of revenues:             |                                                       |                              |       |      |       |      |       |      |       |  |       |     
|                              
|                              
|                              
|                              
|                               | Licenses                                              |                              |       | 8.4  |       |      |       | 4.8  |       |  |       | 3.8  |      
|                              
|                              
|                              
|                              
|                               | Services                                              |                              |       | 16.0 |       |      |       | 21.7 |       |  |       | 27.5 |      
|                               |                                                       |                              |       |      |       |      |       |      |       |  |       |     
|                               |                                                       | Total costs of revenues      |       |      | 24.4  |      |       |      | 26.5  |  |       |      | 31.3  | 
|                               |                                                       |                              |       |      |       |      |       |      |       |  |       |     
|Gross profit                   |                                                       |                              | 75.6  |      |       |      | 73.5  |      |       |  | 68.7  |     
|                              
|                              
|                              
|                              
|Operating expenses:            |                                                       |                              |       |      |       |      |       |      |       |  |       |     
|                              
|                              
|                              
|                              
|                               | Sales and marketing                                   |                              |       | 52.7 |       |      |       | 55.9 |       |  |       | 64.4 |      
|                              
|                              
|                              
|                              
|                               | Research and development                              |                              |       | 22.9 |       |      |       | 19.1 |       |  |       | 24.6 |      
|                              
|                              
|                              
|                              
|                               | General and administrative                            |                              |       | 13.3 |       |      |       | 9.8  |       |  |       | 13.8 |      
|                              
|                              
|                              
|                              
|                               | Amortization of acquisition related intangible assets |                              |       | 18.7 |       |      |       | 12.1 |       |  |       | 9.2  |      
|                              
|                              
|                              
|                              
|                               | Restructuring charge                                  |                              |       | 9.3  |       |      |       | 0.0  |       |  |       | 0.0  |      
|                              
|                              
|                              
|                              
|                               | Warrant expense                                       |                              |       | 0.3  |       |      |       | 0.0  |       |  |       | 0.0  |      
|                               |                                                       |                              |       |      |       |      |       |      |       |  |       |     
|                               |                                                       | Total operating expenses     |       |      | 117.2 |      |       |      | 96.9  |  |       |      | 112.0 | 
|                               |                                                       |                              |       |      |       |      |       |      |       |  |       |     
|Loss from operations           |                                                       |                              | (41.6 | )    |       |      | (23.4 | )    |       |  | (43.3 | )   
|                              
|                              
|                              
|                              
|Interest and other income, net |                                                       |                              | (11.3 | )    |       |      | 2.7   |      |       |  | 0.9   |     
|                               |                                                       |                              |       |      |       |      |       |      |       |  |       |     
|Net loss                       |                                                       |                              | (52.9 | )%   |       |      | (20.7 | )%   |       |  | (42.4 | )%  
|                               |                                                       |                              |       |      |       |      |       |      |       |  |       |     

Comparison of the Years Ended December 31, 1999 and
2000

Revenues

Total revenues increased from $36.3 million in the year ended
December 31, 1999 to $107.7 million in the year ended
December 31, 2000, an increase of 197%. Revenues from our
SalesLogix product line increased from $36.3 million in the year
ended December 31, 1999 to $63.6 million in the year ended,
an increase of 75%. ACT! revenues were $44.0 million in 2000.
The ACT! product line was acquired on December 31, 1999.
Our revenues outside of North America increased from
approximately $6.7 million in the year ended December 31,
1999 to approximately $19.7 million in the year ended
December 31, 2000. No customer accounted for more than 10%
of revenues in the year ended December 31, 1999. During the
year ended December 31, 2000, one customer, Ingram Micro,
accounted for approximately 19% of revenue. This customer also
accounted for 18% of the outstanding receivables at
December 31, 2000.

License Revenues. Our license revenues increased from
$24.0 million in the year ended December 31, 1999 to $85.0
million in the year ended December 31, 2000, an increase of
254%. The increase in license revenues was due primarily to the
acquisition of ACT! Excluding ACT!, the increase was primarily
due to increases in the size and productivity of our business
partner network, increased market awareness and acceptance of
our products and the growth of our direct sales force. Our
license revenues represented 66.1% of our total revenues in the
year ended December 31, 1999 and 79.0% in the year ended
December 31, 2000.

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Service Revenues. Service revenues include fees for
maintenance, technical support, consulting and training
services. Substantially all service revenues arise from the
SalesLogix product line. Our service revenues increased from
$12.3 million in the year ended December 31, 1999 to $22.6
million in the year ended December 31, 2000, an increase of
84%. The increase resulted primarily from the increase in the
number of licenses sold as well as renewals of existing
maintenance and technical support contracts from the growing
installed base of SalesLogix customers. Customers are required
to enter into one-year support and maintenance contracts at the
time of purchase and have the option to renew for additional
one-year periods thereafter. Our service revenues represented
33.9% of our total revenues in the year ended December 31,
1999 and 21.0% in the year ended December 31, 2000. Service
revenues as a percentage of total revenues decreased primarily
due to the acquisition of ACT! whose revenues are primarily
derived from license sales.

Costs of Revenues

Cost of License Revenues. Cost of license revenues
includes the cost of media, product packaging, documentation and
other production costs and third party royalties. Cost of
license revenues increased from $1.8 million in the year ended
December 31, 1999 to $9.0 million in the year ended
December 31, 2000, representing 7.3% of license revenues in
the year ended December 31, 1999 and 10.6% of license
revenues in the year ended December 31, 2000. Cost of
license revenues increased primarily as a result of the
acquisition of ACT! Excluding ACT!, cost of license revenues
increased due to product royalties for third party technology
embedded in our products and increases in overall license sales.

Cost of Service Revenues. Cost of service revenues
consists of the costs of providing technical support, training
and consulting services to customers and business partners. Cost
of service revenues increased from $7.9 million in the year
ended December 31, 1999 to $17.3 million in the year ended
December 31, 2000. The absolute dollar increase was
primarily attributable to hiring and training of additional
personnel to support our growing customer base and business
partner network and the cost of maintaining a telephone support
center for the ACT! product line. Cost of service revenues
represented 64.1% of service revenues in the year ended
December 31, 1999 and 76.2% in the year ended
December 31, 2000. The increase as a percentage of service
revenues primarily reflects the high fixed costs of the ACT!
telephone support center.

Operating Expenses

Sales and Marketing. Sales and marketing expenses consist
primarily of personnel-related expenses, costs related to the
recruitment and support of our business partner channel, and
marketing and promotional costs to increase brand awareness in
the marketplace and to generate leads for our sales channels.
Sales and marketing expenses increased from $20.3 million in the
year ended December 31, 1999 to $56.7 million in the year
ended December 31, 2000, an increase of 180%. The increases
in sales and marketing expenses from the year ended
December 31, 1999 to the year ended December 31, 2000
reflected the hiring of additional sales and marketing
personnel, expanded advertising and other promotional activities
and increased sales commissions and bonuses related to increased
license revenues, and the incremental advertising, promotions,
and headcount costs associated with the acquisition of the ACT!
product line. The increase also reflects the increased
promotional activity related to the Interact.com operation that
was discontinued during October 2000. Sales and marketing
expenses represented 55.9% of our total revenues in the year
ended December 31, 1999 and 52.7% of our total revenues in
the year ended December 31, 2000.

Research and Development. Research and development
expenses consist primarily of personnel-related costs for
software developers, quality assurance and product documentation
personnel and payments to outside contractors. Research and
development expenses increased from $6.9 million in the year
ended December 31, 1999 to $24.6 million in the year ended
December 31, 2000, an increase of 255%. This increase was
primarily due to additional research and development personnel
hired in connection with the ACT! product line acquisition,
research and development for the Interact.com operation that was
discontinued during the fourth quarter 2000, and an increase in
the number of software developers, quality assurance personnel
and outside developers to support our product development,
testing and documentation activities related to the development
and release upgrades to our SalesLogix and ACT! software
products. Research and development

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General and Administrative. General and administrative
expenses consist primarily of salaries and related expenses for
executive, finance and administrative personnel, as well as
outside professional fees. General and administrative expenses
increased from $3.6 million in the year ended December 31,
1999 to $14.3 million in the year ended December 31, 2000.
This increase was primarily due to increased staffing and
related expenses necessary to manage and support the expansion
of our operations, additional headcount added to support the
ACT! products, and the additional costs associated with being a
publicly held company. General and administrative expenses
represented 9.8% of our total revenues in the year ended
December 31, 1999 and 13.3% of our total revenues in the
year ended December 31, 2000.

Amortization of Acquisition Related Intangible Assets.
Amortization of acquisition related intangible assets consisted
primarily of the amortization of specifically identified
intangible assets and goodwill. Amortization of acquisition
related intangible assets increased from $4.4 million in the
year ended December 31, 1999 to $20.1 million in the year
ended December 31, 2000. The increase was due to the
acquisitions of Enact in April 1999 and ACT! in
December 1999.

Restructuring Charge. On October 21, 2000, the
Company recorded a charge of $10.0 million related to the
closure of Interact.com. Interact.com was an Internet-based
product for salespeople. The restructuring was the result of the
unprofitability and lack of market acceptance of Interact.com.
This restructuring eliminated redundant and unnecessary
positions and resulted in a reduction in our workforce of
approximately 13 percent. Equipment used for the
Interact.com venture was written off as part of the
restructuring, and the cost of rent on excess facilities that
are to be closed was accrued.

Employee termination benefits include severance and medical and
other benefits. Office closure includes the cost of lease
termination on locations to be closed. Fixed asset write-downs
reflect the difference between historical cost and fair value of
assets (primarily computer equipment) that was used to support
the Interact.com product. Contract terminations include the cost
of terminating contracts specific to Interact.com.

A summary of the restructuring charge is as follows:

|                              |  |                    |        |                  |  |                   |       |  |  |   |       | 
|----------------------------- |  | ------------------ | ------ | ---------------- |  | ----------------- | ----- |  |  | - | ----- | 
|                              |  | Charged to Expense |        |                  |  | Balance at       
|                              |  | in 2000            |        | Utilized in 2000 |  | December 31, 2000
|                              |  |                    |        |                  |  |                  
|                              |  |                   
|                              |  | (In Thousands)    
|                             
|                             
|                             
|                             
|Fixed asset write downs       |  | $                  | 4,271  |                  |  | $                 | 4,271 |  |  | $ |      | 
|                             
|                             
|                             
|                             
|Employee termination benefits |  |                    | 961    |                  |  |                   | 505   |  |  |   | 456   | 
|                             
|                             
|                             
|                             
|Office closure costs          |  |                    | 1,200  |                  |  |                   | 283   |  |  |   | 917   | 
|                             
|                             
|                             
|                             
|Contract termination costs    |  |                    | 3,568  |                  |  |                   | 1,692 |  |  |   | 1,876 | 
|                              |  |                    |        |                  |  |                   |       |  |  |   |       | 
|                              |  | $                  | 10,000 |                  |  | $                 | 6,751 |  |  | $ | 3,249 | 
|                              |  |                    |        |                  |  |                   |       |  |  |   |       | 

Interest and other income (expense), net. Interest and
other income (expense), net consists primarily of amounts earned
on our cash and short-term investment balances, offset by
interest expense on the debt incurred in conjunction with the
acquisition of the ACT! product line in December 1999. Net
other income was $977,000 in 1999, and net other expense was
$12.2 million in 2000. The increase in net expense was due
primarily to interest on our subordinated debt and the accretion
of the discount on the royalty payable to Symantec Corporation.

Income Taxes. As of December 31, 2000, we had net
operating loss carryforwards for federal and state income tax
reporting purposes of approximately $43.0 million. The federal
carryforwards expire at various dates beginning 2011. The
Internal Revenue Code contains provisions that limit the use in
any future period of net operating loss and tax credit
carryforwards upon the occurrence of specific events, including
a significant change in ownership interests. We had deferred tax
assets, including net operating loss and tax credit
carryforwards, totaling approximately $30.0 million as of
December 31, 2000. A valuation allowance has been recorded
for the entire net deferred tax asset balance as a result of
uncertainties regarding its realization.

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Comparison of the Years Ended December 31, 1998 and
1999

Revenues

Total revenues increased from $15.6 million in the year ended
December 31, 1998 to $36.3 million in the year ended
December 31, 1999, an increase of 132%. No customer
accounted for more than 10% of revenues in the years ended
December 31, 1998 and 1999. Our revenues outside of North
America increased from approximately $1.4 million in the year
ended December 31, 1998 to approximately $6.7 million in
the year ended December 31, 1999.

License Revenues. Our license revenues increased from
$10.1 million in the year ended December 31, 1998 to $24.0
million in the year ended December 31, 1999, an increase of
138%. The increase in license revenues was due primarily to
increases in the size and productivity of our business partner
network, increased market awareness and acceptance of our
products and the establishment of our direct sales force in the
second half of 1998. Our license revenues represented 64.6% of
our total revenues in the year ended December 31, 1998 and
66.1% in the year ended December 31, 1999.

Service Revenues. Service revenues include fees for
maintenance, technical support, consulting and training
services. Our service revenues increased from $5.5 million in
the year ended December 31, 1998 to $12.3 million in the
year ended December 31, 1999, an increase of 122%. The
increase resulted primarily from the increase in the number of
licenses sold as well as renewals of existing maintenance and
technical support contracts from the growing installed base of
SalesLogix customers. Customers are required to enter into
one-year support and maintenance contracts at the time of
purchase and have the option to renew for additional one-year
periods thereafter. Our service revenues represented 35.4% of
our total revenues in the year ended December 31, 1998 and
33.9% in the year ended December 31, 1999. Service revenues
as a percentage of total revenues decreased as our business
partner channel matured and completed more installations without
the assistance of our professional services group.

Costs of Revenues

Cost of License Revenues. Cost of license revenues
includes the cost of media, product packaging, documentation and
other production costs and third party royalties. Cost of
license revenues increased from $604,000 in the year ended
December 31, 1998 to $1.8 million in the year ended
December 31, 1999, representing 6.0% of license revenues in
the year ended December 31, 1998 and 7.3% of license
revenues in the year ended December 31, 1999. Cost of
license revenues as a percentage of license revenues increased
as a result of increased product royalties for third-party
technology, primarily report writing software, embedded in our
products.

Cost of Service Revenues. Cost of service revenues
consists of the costs of providing technical support, training
and consulting services to SalesLogix customers and business
partners. Cost of service revenues increased from $4.3 million
in the year ended December 31, 1998 to $7.9 million in the
year ended December 31, 1999. The increase was primarily
attributable to hiring and training of additional personnel to
support our growing customer base and business partner network.
Cost of service revenues represented 77.6% of service revenues
in the year ended December 31, 1998 and 64.1% in the year
ended December 31, 1999. This decrease reflects a reduction
in the time and expenses our consulting organization incurred
while providing free or low margin support to business partners
in their early implementations of our product.

Operating Expenses

Sales and Marketing. Sales and marketing expenses consist
primarily of personnel-related expenses, costs related to the
recruitment and support of our business partner channel, costs
of our direct sales force established in the second half of
1998, and promotional costs to increase brand awareness in the
marketplace and to generate leads for our sales channels. Sales
and marketing expenses increased from $10.1 million in the year
ended December 31, 1998 to $20.3 million in the year ended
December 31, 1999, an increase of 101%. The increases in
sales and marketing expenses from the year ended
December 31, 1998 to the year ended December 31, 1999
reflected the hiring of additional sales and marketing
personnel, a full year of costs and the

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Research and Development. Research and development
expenses consist primarily of personnel-related costs for
software developers, quality assurance and product documentation
personnel and payments to outside contractors. Research and
development expenses increased from $3.8 million in the year
ended December 31, 1998 to $6.9 million in the year ended
December 31, 1999, an increase of 80.0%. This increase was
primarily due to an increase in the number of software
developers, quality assurance personnel and outside developers
to support our product development, testing and documentation
activities related to the development and release of both the
client-server and Internet versions of SalesLogix. Research and
development expenses represented 24.6% of our total revenues in
the year ended December 31, 1998 and 19.1% of our total
revenues in the year ended December 31, 1999.

General and Administrative. General and administrative
expenses consist primarily of salaries and related expenses for
executive, finance and administrative personnel, as well as
outside professional fees. General and administrative expenses
increased from $2.2 million in the year ended December 31, 1998
to $3.6 million in the year ended December 31, 1999. This
increase was primarily due to increased staffing and related
expenses necessary to manage and support the expansion of our
operations and the expenses associated with becoming a public
company, including but not limited to annual and other public
reporting costs, directors and officers liability
insurance, investor relations programs and professional service
fees. General and administrative expenses represented 13.8% of
our total revenues in the year ended December 31, 1998 and
9.8% of our total revenues in the year ended December 31,
1999. The decrease was primarily attributable to the more rapid
growth of revenues compared to the growth of general and
administrative expenses during this period.

Amortization of Acquisition Related Intangible Assets.
Amortization of acquisition related intangible assets consisted
primarily of the amortization of specifically identified
intangible assets and goodwill. Amortization of acquisition
related intangible assets increased from $1.4 million in the
year ended December 31, 1998 to $4.4 million in the year
ended December 31, 1999. The increase was due to the
acquisition of Enact in April 1999.

Interest Expense. Interest expense decreased from
$255,000 in 1998 to $160,000 in 1999 due to the repayment of
outstanding borrowings with proceeds from our initial public
offering.

Liquidity and Capital Resources

As of December 31, 2000, we had cash and cash equivalents
of $12.2 million, a decrease of $48.6 million from
December 31, 1999. Our working capital at December 31,
2000 was $8.0 million, compared to $49.9 million at
December 31, 1999.

Our operating activities resulted in net cash outflows of $5.4
million in 1998, $2.9 million in 1999, and $17.3 million in
2000. The operating cash outflows resulted primarily from
significant investments in sales, marketing and product
development, which led to operating losses. The cash outflows
from operating losses, increases in accounts receivable, and
prepaid expenses and other current assets were partially offset
by increases in accounts payable and accrued expenses as well as
a decrease in the amount due from Symantec in 2000. Operating
cash outflows were less than net losses due in large part to
noncash charges for amortization of acquisition related
intangible assets and accretion of discounts on long term
obligations.

Cash used in investing activities was $1.7 million in 1998,
$12.9 million in 1999, and $20.2 million in 2000, resulting
primarily from the purchase of capital equipment in each of the
three years, the total cash consideration and related expenses
paid in connection with the Enact acquisition in 1999 and from
the purchase of short-term investments available for sale in
2000.

Cash provided by financing activities totaled $15.3 million in
1998 and $65.2 million in 1999. Cash used in financing
activities was $11.2 million in 2000. Financing cash flows in
1998 resulted primarily from the

31



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##### Table of Contents





Subsequent to December 31, 2000, we secured a $20 million
credit facility for working capital purposes. The line of credit
is subject to available collateral and requires the maintenance
of certain financial and operational covenants. We believe that
our existing cash and cash equivalents combined with our
operating results and available borrowing capacity on our credit
line will be sufficient to meet our anticipated cash needs for
working capital and capital expenditures through
December 31, 2001. We require substantial capital to fund
our business, particularly to finance international expansion
and accounts receivable, and for capital expenditures and
potential acquisitions. Our future capital requirements will
depend on many factors, including the rate of revenue growth,
the timing and extent of spending to support product development
efforts and expansion of sales and marketing, the timing of
introductions of new products and enhancements to existing
products and market acceptance of our products. As a result, we
could be required to raise substantial additional capital. To
the extent that we raise additional capital through the sale of
equity or convertible debt securities, the issuance of these
securities could result in dilution to our existing
stockholders. If additional funds are raised through the
issuance of debt securities, the debt would have rights,
preferences and privileges senior to holders of common stock and
the terms of the debt could impose restrictions on our
operations. We cannot assure you that such additional capital,
if required, will be available on acceptable terms, or at all.
If we are unable to obtain the necessary additional capital, we
may be required to reduce the scope of our planned product
development and sales and marketing efforts, which would
materially adversely affect our business, financial condition
and operating results.




Item 7A.  Quantitative and Qualitative
Disclosures about Market Risk

Our primary exposure to market risk arises from foreign currency
exchange risk associated with our international operations and
foreign currency exchange risk associated with our U.S. sales
made in foreign currency. We do not currently use, nor have we
historically used, derivative financial instruments to manage or
reduce market risk.

Beginning January 1, 2000 the functional currencies for our
European, German, and Australian operations are Pounds Sterling,
Euro, and Australian dollars, respectively. During 2000, we
commenced operations in Singapore using the Singapore Dollar as
our functional currency. As such, there is potential market risk
exposure for our future earnings due to changes in exchange
rates. Given the relatively short duration of our international
monetary assets and liabilities, the relative stability of these
currencies compared to the U.S. dollar, and the relative size of
our international operations, we consider this exposure to be
minimal. We believe that a 10% change in exchange rates would
not have a significant impact on our future earnings.

Our cash equivalents are exposed to financial market risk,
including changes in interest rates. We typically do not attempt
to reduce or eliminate our market exposures on these investment
securities because of their short-term duration. We believe that
the fair value of our investment portfolio or related income
would not be significantly impacted by either a 100 basis point
increase or decrease in interest rates due mainly to the
short-term nature of the major portion of our investment
portfolio.




Item 8.  Financial Statements and Supplementary
Data

The Independent Auditors Report, Consolidated Financial
Statements and Notes to Consolidated Financial Statements begin
on Page 36.




Item 9.  Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure

None.

32



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##### Table of Contents






PART III




Item 10.  Directors and Executive Officers of
the Registrant

The information required by this Item will be included in our
proxy statement for our 2001 annual meeting of stockholders or
in an amendment to this annual report and is incorporated by
reference. We will file such proxy statement or amendment within
120 days of December 31, 2000.




Item 11.  Executive Compensation

The information required by this Item will be included in our
proxy statement for our 2001 annual meeting of stockholders or
in an amendment to this annual report and is incorporated by
reference. We will file such proxy statement or amendment within
120 days of December 31, 2000.




Item 12.  Security Ownership of Certain
Beneficial Owners and Management

The information required by this Item will be included in our
proxy statement for our 2001 annual meeting of stockholders or
in an amendment to this annual report and is incorporated by
reference. We will file such proxy statement or amendment within
120 days of December 31, 2000.




Item 13.  Certain Relationships and Related
Transactions

The information required by this Item will be included in our
proxy statement for our 2001 annual meeting of stockholders or
in an amendment to this annual report and is incorporated by
reference. We will file such proxy statement or amendment within
120 days of December 31, 2000.

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##### Table of Contents






PART IV




ITEM 14.  Exhibits, Financial Statements and
Schedules and Reports On Form 8-K

(a)  Financial Statements and Financial Statement Schedules:

|   |  |                                                                                                        |  |      |    | 
|-- |  | ------------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|   |  |                                                                                                        |  | Page
|   |  |                                                                                                        |  |     
|1. |  | Index to Consolidated Financial Statements                                                             |  |      |    | 
|  
|  
|  
|  
|   |  | Report of Ernst & Young LLP, Independent Auditors                                                      |  |      | 36 | 
|  
|  
|  
|  
|   |  | Consolidated Balance Sheets as of December 31, 1999 and 2000                                           |  |      | 37 | 
|  
|  
|  
|  
|   |  | Consolidated Statements of Operations for the years ended
	December 31, 1998, 1999, and 2000           |  |      | 38 | 
|  
|  
|  
|  
|   |  | Consolidated Statements of Stockholders Equity for the
	years ended December 31, 1998, 1999, and 2000 |  |      | 39 | 
|  
|  
|  
|  
|   |  | Consolidated Statements of Cash Flows for the years ended
	December 31, 1998, 1999, and 2000           |  |      | 40 | 
|  
|  
|  
|  
|   |  | Notes to Consolidated Financial Statements                                                             |  |      | 41 | 
|2. |  | Index to Financial Statement Schedules                                                                 |  |      |    | 
|   |  | Schedule II  Valuation and Qualifying Accounts                                                        |  |      |    | 

Schedules not listed above have been omitted because they are
not applicable or are not required or the information required
to be set forth in the schedules is included in the consolidated
financial statements or related notes.

(b)  Reports on Form 8-K

None.

(c)  Exhibits

|       |      |             |  |                                                                                                                                         
|------ | ---- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------
|Number |      | Description
|       |      |            
|       | 2.1  | (2)         |  | Software License Agreement between the Company and Symantec
	Corporation dated December 6, 1999.                                        
|       | 2.2  | (2)         |  | Amendment to Software License Agreement between the Company and
	Symantec Corporation dated December 31, 1999.                          
|       | 2.3  | (2)         |  | Exhibit A to Software License Agreement 
	Licensed Products.                                                                           
|       | 2.4  | (2)         |  | Exhibit C to Software License Agreement  Other
	Transferred Assets.                                                                    
|       | 2.5  | (2)         |  | Exhibit E to Software License Agreement 
	Transferred Liabilities.                                                                     
|       | 2.6  | (2)         |  | Exhibit F to Software License Agreement 
	Transition Agreement.                                                                        
|       | 2.7  | (2)         |  | Exhibit M to Software License Agreement 
	Registration Rights Agreement.                                                               
|       | 2.8  | (2)         |  | Exhibit N to Software License Agreement 
	Stockholder Agreement.                                                                       
|       | 3.1  | (1)         |  | Fifth Restated Certificate of Incorporation of the registrant.                                                                          
|       | 3.2  | (4)         |  | Amendment No. 1 to Fifth Restated Certificate of
	Incorporation, effective April 24, 2000.                                              
|       | 3.3  | (1)         |  | Second Restated Bylaws of the registrant.                                                                                               
|       | 4.1  | (1)         |  | Amended and Restated Investors Rights Agreement, dated as
	of June 4, 1998, by and among the registrant and the
	parties named therein.
|       | 4.2  | (1)         |  | Opis Investors Rights Agreement, dated as of
	December 30, 1997, among the registrant and the parties
	named therein.                  
|       | 4.3  | (1)         |  | Warrant to Purchase Stock, dated December 2, 1997, issued
	to Silicon Valley Bank that includes piggyback registration
	rights.         
|       | 4.4  |             |  | Warrant to Purchase Stock (dated August 4, 2000) issued to
	Sprint Spectrum L.P. that includes piggyback registration rights.           
|       | 10.1 | (2)         |  | Office Lease Agreement, dated as of June 17, 1998, between
	Gainey Ranch Corporate Center and the registrant.                           

34



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##### Table of Contents



|       |       |             |  |                                                                                                                                                                                                          
|------ | ----- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |       | Description
|       |       |            
|       | 10.2  | (1)         |  | Second Amended and Restated Loan and Security Agreement, dated
	as of December 2, 1997, between Silicon Valley Bank and the
	registrant, and modifications thereto.                                      
|       | 10.3  | (1)         |  | Master Equipment Lease dated June 7, 1996 between the
	registrant and Comdisco, Inc., including subsequent schedules of
	equipment.                                                                      
|       | 10.4  | (1)         |  | 1996 Equity Incentive Plan, as amended.                                                                                                                                                                  
|       | 10.5  | (1)         |  | 1998 Business Partner Stock Option Plan, as amended.                                                                                                                                                     
|       | 10.6  | (1)         |  | 1999 Outside Director Stock Option Plan                                                                                                                                                                  
|       | 10.7  | (1)         |  | 1999 Employee Stock Purchase Plan.                                                                                                                                                                       
|       | 10.8  | (1)         |  | Employment Agreement dated January 17, 1996 with Patrick M.
	Sullivan.                                                                                                                                   
|       | 10.9  | (3)         |  | Senior Subordinated Note and Warrant Purchase Agreement dated
	December 31, 1999 among the registrant, BA Technology I,
	LLC and GE Capital Equity Investments, Inc.                                     
|       | 10.10 | (3)         |  | Registration Rights Agreement dated December 31, 1999 among
	the registrant, BA Technology I, LLC and GE Capital Equity
	Investments, Inc.                                                               
|       | 10.11 | (3)         |  | Common Stock Purchase Warrant dated December 31, 1999
	issued to BA Technology I, LLC                                                                                                                    
|       | 10.12 | (3)         |  | Common Stock Purchase Warrant dated December 31, 1999
	issued to GE Capital Equity Investments, Inc.                                                                                                     
|       | 10.13 | (3)         |  | Senior Subordinated Note Due 12/31/04 issued to BA Technology I,
	LLC                                                                                                                                    
|       | 10.14 | (3)         |  | Senior Subordinated Note Due 12/31/04 issued to GE Capital
	Equity Investments, Inc.                                                                                                                     
|       | 10.15 | (3)         |  | Office Lease Agreement dated as of November 1, 1999 between
	the registrant and Opus West Corporation.                                                                                                   
|       | 10.16 | (4)         |  | Commercial Lease Agreement dated January 19, 2000 between
	the registrant and NOVA CCOP, Inc.                                                                                                            
|       | 10.17 | (4)         |  | Office Lease dated February 3, 2000 between the registrant
	and Century San Jose, LLC.                                                                                                                   
|       | 10.18 | (4)         |  | Credit Agreement dated April 27, 2000 between registrant
	and Imperial Bank.                                                                                                                             
|       | 10.19 | (4)         |  | Security Agreement dated April 27, 2000 between registrant
	and Imperial Bank.                                                                                                                           
|       | 10.20 | (4)         |  | Revolving Promissory Note dated April 27, 2000 between
	registrant and Imperial Bank.                                                                                                                    
|       | 10.21 | (4)         |  | Master Lease Agreement dated February 28, 2000, as amended
	and modified, between registrant and Imperial Bank.                                                                                          
|       | 10.22 |             |  | Loan and Security Agreement dated March 16, 2001 between
	registrant and Foothill Capital Corporation.                                                                                                   
|       | 10.23 |             |  | Intellectual Property Security Agreement dated March 16,
	2001 between registrant and Foothill Capital Corporation.                                                                                      
|       | 10.24 |             |  | Collateral Assignment of Rights under Symantec License Agreement
	dated March 16, 2001 between registrant and Foothill
	Capital Corporation, consented to by Symantec Corporation.                       
|       | 10.25 |             |  | Stock Pledge Agreement dated March 16, 2001 between
	registrant and Foothill Capital Corporation.                                                                                                        
|       | 10.26 |             |  | Sideletter Agreement dated March 16, 2001 amending Senior
	Subordinated Note Purchase Agreement dated December 31,
	1999 among BA Technology I, LLC, GE Capital Equity Investments,
	Inc. and registrant.
|       | 21.1  |             |  | Subsidiaries of the registrant.                                                                                                                                                                          
|       | 23.1  |             |  | Consent of Ernst & Young LLP, Independent Auditors.                                                                                                                                                      




|    |                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to the Registration Statement on
	Form S-1 (No.  333-75353) filed by the registrant on
	March 31, 1999, as amended.
|   
|(2) | Incorporated by reference to the Current Report on Form 8-K
	for transaction dated December 31, 1999.                                        
|   
|(3) | Incorporated by reference to Annual Report on Form 10-K for
	the year ended December 31, 1999.                                               
|   
|(4) | Incorporated by reference to Quarterly Report on Form 10-Q
	for the quarter ended March 31, 2000.                                            

35



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##### Table of Contents



REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders



We have audited the accompanying consolidated balance sheets of
Interact Commerce Corporation and Subsidiaries as of
December 31, 2000 and 1999, and the related consolidated
statements of operations, stockholders equity, and cash
flows for each of the three years in the period ended
December 31, 2000. Our audits also included the financial
statement schedule listed in the index at Item 14(a). These
financial statements and schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.

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

In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Interact Commerce Corporation and
Subsidiaries at December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion,
the related financial statement schedules, when considered in
relation to the basic financial statements taken as a whole,
represent fairly in all material respects the information set
forth therein.



| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP

Phoenix, Arizona




36



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##### Table of Contents



INTERACT COMMERCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)


|                                                                      |                                                                                                                                                                              |                                            |         |         |         |   |         |         |         | 
|--------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                                      |                                                                                                                                                                              |                                           
|                                                                      |                                                                                                                                                                              | December 31,                              
|                                                                      |                                                                                                                                                                              |                                           
|                                                                      |                                                                                                                                                                              | 2000                                       |         | 1999   
|                                                                      |                                                                                                                                                                              |                                            |         |        
|Assets                                                                |                                                                                                                                                                              |                                            |         |         |         |   |         |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Current assets:                                                       |                                                                                                                                                                              |                                            |         |         |         |   |         |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Cash and cash equivalents                                                                                                                                                    |                                            | $       | 12,171  |         |   | $       | 60,795  |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Short-term investments                                                                                                                                                       |                                            |         | 5,975   |         |   |         |        |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Accounts receivable, net of allowance for bad debts and returns
	of $4,145 and $1,064 at December 31, 2000 and 1999,
	respectively                                           |                                            |         | 32,331  |         |   |         | 12,609  |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Due from Symantec Corporation                                                                                                                                                |                                            |         |        |         |   |         | 5,609   |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Prepaid expenses and other current assets                                                                                                                                    |                                            |         | 2,830   |         |   |         | 2,953   |        
|                                                                      |                                                                                                                                                                              |                                            |         |         |         |   |         |        
|                                                                      |                                                                                                                                                                              | Total current assets                       |         |         | 53,307  |   |         |         | 81,966  | 
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Property and equipment, net                                           |                                                                                                                                                                              |                                            | 13,809  |         |         |   | 9,707   |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Intangible assets                                                     |                                                                                                                                                                              |                                            | 52,539  |         |         |   | 72,049  |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Recoverable deposits and other assets                                 |                                                                                                                                                                              |                                            | 1,509   |         |         |   | 1,161   |        
|                                                                      |                                                                                                                                                                              |                                            |         |         |         |   |         |        
|                                                                      |                                                                                                                                                                              | $                                          | 121,164 |         |         | $ | 164,883 |        
|                                                                      |                                                                                                                                                                              |                                            |         |         |         |   |         |        
|Liabilities and Stockholders Equity                                  |                                                                                                                                                                              |                                            |         |         |         |   |         |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Current liabilities:                                                  |                                                                                                                                                                              |                                            |         |         |         |   |         |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Accounts payable                                                                                                                                                             |                                            | $       | 7,107   |         |   | $       | 5,287   |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Accrued expenses                                                                                                                                                             |                                            |         | 10,964  |         |   |         | 3,143   |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Restructuring accrual                                                                                                                                                        |                                            |         | 3,249   |         |   |         |        |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Line of credit                                                                                                                                                               |                                            |         | 2,000   |         |   |         |        |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Current portion of capital lease obligations                                                                                                                                 |                                            |         | 1,164   |         |   |         | 1,083   |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Current portion of Symantec royalty payments                                                                                                                                 |                                            |         | 13,299  |         |   |         | 11,775  |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Deferred revenues                                                                                                                                                            |                                            |         | 7,574   |         |   |         | 10,800  |        
|                                                                      |                                                                                                                                                                              |                                            |         |         |         |   |         |        
|                                                                      |                                                                                                                                                                              | Total current liabilities                  |         |         | 45,357  |   |         |         | 32,088  | 
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Capital lease obligations, less current portion                       |                                                                                                                                                                              |                                            | 2,507   |         |         |   | 2,264   |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Long-term debt                                                        |                                                                                                                                                                              |                                            | 31,974  |         |         |   | 25,942  |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Net present value of Symantec royalty payments, less current
	portion |                                                                                                                                                                              |                                            | 20,864  |         |         |   | 29,165  |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Deferred rental obligation                                            |                                                                                                                                                                              |                                            | 102     |         |         |   | 106     |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|Stockholders equity:                                                 |                                                                                                                                                                              |                                            |         |         |         |   |         |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Preferred stock, authorized 20,000,000 shares, no shares issued
	or outstanding at December 31, 2000 or 1999                                                                 |                                            |         |        |         |   |         |        |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Common stock, par value $.001 per share; authorized 50,000,000
	shares, 20,260,047 and 19,348,791 shares issued and outstanding
	at December 31, 2000 and 1999, respectively |                                            |         | 20      |         |   |         | 19      |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Additional paid-in capital                                                                                                                                                   |                                            |         | 103,347 |         |   |         | 102,816 |        
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Unearned compensation                                                                                                                                                        |                                            |         | (1,184  | )       |   |         | (2,634  | )      
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Accumulated deficit                                                                                                                                                          |                                            |         | (81,803 | )       |   |         | (24,883 | )      
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Other comprehensive loss                                                                                                                                                     |                                            |         | (20     | )       |   |         |        |        
|                                                                      |                                                                                                                                                                              |                                            |         |         |         |   |         |        
|                                                                      |                                                                                                                                                                              | Total stockholders equity                 |         |         | 20,360  |   |         |         | 75,318  | 
|                                                                      |                                                                                                                                                                              |                                            |         |         |         |   |         |        
|                                                                      |                                                                                                                                                                              | Total liabilities and stockholders equity |         | $       | 121,164 |   |         | $       | 164,883 | 
|                                                                      |                                                                                                                                                                              |                                            |         |         |         |   |         |        

See accompanying notes.

37



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##### Table of Contents



INTERACT COMMERCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)


|                                                                                           |                                                       |                          |            |        |         |      |            |        |        |   |           |        |        | 
|------------------------------------------------------------------------------------------ | ----------------------------------------------------- | ------------------------ | ---------- | ------ | ------- | ---- | ---------- | ------ | ------ | - | --------- | ------ | ------ | 
|                                                                                           |                                                       |                         
|                                                                                           |                                                       | Year Ended December 31, 
|                                                                                           |                                                       |                         
|                                                                                           |                                                       | 2000                     |            | 1999   |         | 1998
|                                                                                           |                                                       |                          |            |        |         |     
|Revenues:                                                                                  |                                                       |                          |            |        |         |      |            |        |        |   |           |       
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Licenses                                              |                          | $          | 85,004 |         |      | $          | 24,005 |        |   | $         | 10,105 |       
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Services                                              |                          |            | 22,646 |         |      |            | 12,290 |        |   |           | 5,538  |       
|                                                                                           |                                                       |                          |            |        |         |      |            |        |        |   |           |       
|Total revenues                                                                             |                                                       |                          | 107,650    |        |         |      | 36,295     |        |        |   | 15,643    |       
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Costs of revenues:                                                                         |                                                       |                          |            |        |         |      |            |        |        |   |           |       
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Licenses                                              |                          |            | 8,991  |         |      |            | 1,755  |        |   |           | 604    |       
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Services                                              |                          |            | 17,255 |         |      |            | 7,872  |        |   |           | 4,299  |       
|                                                                                           |                                                       |                          |            |        |         |      |            |        |        |   |           |       
|                                                                                           |                                                       | Total costs of revenues  |            |        | 26,246  |      |            |        | 9,627  |   |           |        | 4,903  | 
|                                                                                           |                                                       |                          |            |        |         |      |            |        |        |   |           |       
|Gross profit                                                                               |                                                       |                          | 81,404     |        |         |      | 26,668     |        |        |   | 10,740    |       
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Operating expenses:                                                                        |                                                       |                          |            |        |         |      |            |        |        |   |           |       
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Sales and marketing                                   |                          |            | 56,717 |         |      |            | 20,292 |        |   |           | 10,077 |       
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Research and development                              |                          |            | 24,600 |         |      |            | 6,921  |        |   |           | 3,845  |       
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | General and administrative                            |                          |            | 14,340 |         |      |            | 3,559  |        |   |           | 2,151  |       
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Amortization of acquisition related intangible assets |                          |            | 20,112 |         |      |            | 4,379  |        |   |           | 1,436  |       
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Restructuring charge                                  |                          |            | 10,000 |         |      |            |       |        |   |           |       |       
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Warrant expense                                       |                          |            | 394    |         |      |            |       |        |   |           |       |       
|                                                                                           |                                                       |                          |            |        |         |      |            |        |        |   |           |       
|                                                                                           |                                                       | Total operating expenses |            |        | 126,163 |      |            |        | 35,151 |   |           |        | 17,509 | 
|                                                                                           |                                                       |                          |            |        |         |      |            |        |        |   |           |       
|Loss from operations                                                                       |                                                       |                          | (44,759    | )      |         |      | (8,483     | )      |        |   | (6,769    | )     
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|Other income (expense):                                                                    |                                                       |                          |            |        |         |      |            |        |        |   |           |       
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Interest income                                       |                          |            | 2,230  |         |      |            | 1,137  |        |   |           | 385    |       
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Interest expense                                      |                          |            | (4,187 | )       |      |            | (160   | )      |   |           | (255   | )     
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Accretion of discount on Symantec royalty obligation  |                          |            | (8,225 | )       |      |            |       |        |   |           |       |       
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                          
|                                                                                           | Accretion of discount on subordinated debentures      |                          |            | (1,979 | )       |      |            |       |        |   |           |       |       
|                                                                                           |                                                       |                          |            |        |         |      |            |        |        |   |           |       
|Loss before provision for income taxes                                                     |                                                       |                          | (56,920    | )      |         |      | (7,506     | )      |        |   | (6,639    | )     
|                                                                                           |                                                       |                          |            |        |         |      |            |        |        |   |           |       
|Provision for income taxes                                                                 |                                                       |                          |           |        |         |      |           |        |        |   |          |       
|                                                                                           |                                                       |                          |            |        |         |      |            |        |        |   |           |       
|Net loss                                                                                   |                                                       | $                        | (56,920    | )      |         | $    | (7,506     | )      |        | $ | (6,639    | )     
|                                                                                           |                                                       |                          |            |        |         |      |            |        |        |   |           |       
|Historic basic and diluted net loss per share                                              |                                                       | $                        | (2.88      | )      |         | $    | (0.60      | )      |        | $ | (1.76     | )     
|                                                                                           |                                                       |                          |            |        |         |      |            |        |        |   |           |       
|Weighted average shares used in calculating basic and diluted
	historic net loss per share |                                                       |                          | 19,785,252 |        |         |      | 12,577,855 |        |        |   | 3,770,703 |       
|                                                                                           |                                                       |                          |            |        |         |      |            |        |        |   |           |       

See accompanying notes.

38



---



##### Table of Contents



INTERACT COMMERCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(in thousands, except share data)


|                              |                                                                                                                             |                                |            |              |   |              |        |            |   |          |            |            |   |         |    |        |   |        |           |            |   |   |   |    |   |   |         |        |   |  |       |        |   |   |    |     |   | 
|----------------------------- | --------------------------------------------------------------------------------------------------------------------------- | ------------------------------ | ---------- | ------------ | - | ------------ | ------ | ---------- | - | -------- | ---------- | ---------- | - | ------- | -- | ------ | - | ------ | --------- | ---------- | - | - | - | -- | - | - | ------- | ------ | - |  | ----- | ------ | - | - | -- | --- | - | 
|                              |                                                                                                                             |                                |            |              |   |              |        |            |   |         
|                              |                                                                                                                             | Convertible                    |            | Class A      |   | Class B      |        |            |   | Treasury
|                              |                                                                                                                             | Preferred Stock                |            | Common Stock |   | Common Stock |        | Additional |   | Stock   
|                              |                                                                                                                             |                                |            |              |   |              |        | Paid-in    |   |         
|                              |                                                                                                                             | Shares                         |            | Amount       |   | Shares       |        | Amount     |   | Shares   |            | Amount     |   | Capital |    | Shares |   | Amount
|                              |                                                                                                                             |                                |            |              |   |              |        |            |   |          |            |            |   |         |    |        |   |       
|Balance at December  31, 1997 |                                                                                                                             |                                | 10,544,711 |              |   | $            | 15,047 |            |   |          | 2,239,395  |            |   | $       | 2  |        |   |        | 1,723,334 |            |   | $ | 2 |    |   | $ | 513     |        |   |  |      |        |   | $ |   |    
|                             
|                             
|                             
|                             
|                              | Cash proceeds from issuance of Series E Preferred Stock                                                                     |                                |            | 4,556,651    |   |              |        | 18,439     |   |          |            |           |   |         |    |       |   |        |           |           |   |   |   |   |   |   |         |       |   |  |       |       |   |   |    |    |  
|                             
|                             
|                             
|                             
|                              | Exercise of Series A common stock options                                                                                   |                                |            |             |   |              |        |           |   |          |            | 988,930    |   |         |    | 1      |   |        |           |           |   |   |   |   |   |   |         | 150    |   |  |       |       |   |   |    |    |  
|                             
|                             
|                             
|                             
|                              | Purchase of treasury stock                                                                                                  |                                |            |             |   |              |        |           |   |          |            |           |   |         |    |       |   |        |           |           |   |   |   |   |   |   |         |       |   |  |       | 1,667  |   |   |    | (1  | )
|                             
|                             
|                             
|                             
|                              | Purchase of Series B Preferred and Class B Common Stock                                                                     |                                |            | (33,240      | ) |              |        | (3         | ) |          |            |           |   |         |    |       |   |        |           | (1,650,507 | ) |   |   | (2 | ) |   |         | (246   | ) |  |       |       |   |   |    |    |  
|                             
|                             
|                             
|                             
|                              | Equity based compensation                                                                                                   |                                |            |             |   |              |        |           |   |          |            |           |   |         |    |       |   |        |           |           |   |   |   |   |   |   |         | 1,865  |   |  |       |       |   |   |    |    |  
|                             
|                             
|                             
|                             
|                              | Net loss (which is the same as comprehensive loss)                                                                          |                                |            |             |   |              |        |           |   |          |            |           |   |         |    |       |   |        |           |           |   |   |   |   |   |   |         |       |   |  |       |       |   |   |    |    |  
|                              |                                                                                                                             |                                |            |              |   |              |        |            |   |          |            |            |   |         |    |        |   |        |           |            |   |   |   |    |   |   |         |        |   |  |       |        |   |   |    |    
|Balance at December  31, 1998 |                                                                                                                             |                                | 15,068,122 |              |   |              | 33,483 |            |   |          | 3,228,325  |            |   |         | 3  |        |   |        | 72,827    |            |   |   |  |    |   |   | 2,282   |        |   |  | 1,667 |        |   |   | (1 | )  
|                             
|                             
|                             
|                             
|                              | Cash proceeds from initial public offering and concurrent
	private placement, and conversion of convertible preferred stock |                                |            | (15,068,122  | ) |              |        | (33,483    | ) |          |            | 14,345,007 |   |         |    | 14     |   |        |           | (72,827    | ) |   |   |   |   |   |         | 67,565 |   |  |       |       |   |   |    |    |  
|                             
|                             
|                             
|                             
|                              | Exercise of Class  A common stock options                                                                                   |                                |            |             |   |              |        |           |   |          |            | 449,853    |   |         |    | 1      |   |        |           |           |   |   |   |   |   |   |         | 244    |   |  |       |       |   |   |    |    |  
|                             
|                             
|                             
|                             
|                              | Issuance of common stock  employee stock purchase plan                                                                     |                                |            |             |   |              |        |           |   |          |            | 94,453     |   |         |    |       |   |        |           |           |   |   |   |   |   |   |         | 723    |   |  |       |       |   |   |    |    |  
|                             
|                             
|                             
|                             
|                              | Exercise of warrants                                                                                                        |                                |            |             |   |              |        |           |   |          |            | 6,667      |   |         |    |       |   |        |           |           |   |   |   |   |   |   |         | 32     |   |  |       | 2,080  |   |   |    | (32 | )
|                             
|                             
|                             
|                             
|                              | Retirement of treasury stock                                                                                                |                                |            |             |   |              |        |           |   |          |            | (3,747     | ) |         |    |       |   |        |           |           |   |   |   |   |   |   |         | (33    | ) |  |       | (3,747 | ) |   |    | 33  |  
|                             
|                             
|                             
|                             
|                              | Acquisition of Enact                                                                                                        |                                |            |             |   |              |        |           |   |          |            | 609,424    |   |         |    |       |   |        |           |           |   |   |   |   |   |   |         | 5,859  |   |  |       |       |   |   |    |    |  
|                             
|                             
|                             
|                             
|                              | Acquisition of ACT!                                                                                                         |                                |            |             |   |              |        |           |   |          |            | 623,247    |   |         |    | 1      |   |        |           |           |   |   |   |   |   |   |         | 19,999 |   |  |       |       |   |   |    |    |  
|                             
|                             
|                             
|                             
|                              | Adjustment to the OPIS acquisition                                                                                          |                                |            |             |   |              |        |           |   |          |            | (8,438     | ) |         |    |       |   |        |           |           |   |   |   |   |   |   |         | (41    | ) |  |       |       |   |   |    |    |  
|                             
|                             
|                             
|                             
|                              | Warrants issued                                                                                                             |                                |            |             |   |              |        |           |   |          |            |           |   |         |    |       |   |        |           |           |   |   |   |   |   |   |         | 6,233  |   |  |       |       |   |   |    |    |  
|                             
|                             
|                             
|                             
|                              | Shares issued for domain name                                                                                               |                                |            |             |   |              |        |           |   |          |            | 4,000      |   |         |    |       |   |        |           |           |   |   |   |   |   |   |         | 68     |   |  |       |       |   |   |    |    |  
|                             
|                             
|                             
|                             
|                              | Equity based compensation                                                                                                   |                                |            |             |   |              |        |           |   |          |            |           |   |         |    |       |   |        |           |           |   |   |   |   |   |   |         | (115   | ) |  |       |       |   |   |    |    |  
|                             
|                             
|                             
|                             
|                              | Net loss (which is the same as comprehensive loss)                                                                          |                                |            |             |   |              |        |           |   |          |            |           |   |         |    |       |   |        |           |           |   |   |   |   |   |   |         |       |   |  |       |       |   |   |    |    |  
|                              |                                                                                                                             |                                |            |              |   |              |        |            |   |          |            |            |   |         |    |        |   |        |           |            |   |   |   |    |   |   |         |        |   |  |       |        |   |   |    |    
|Balance at December  31, 1999 |                                                                                                                             |                                |           |              |   |              |       |            |   |          | 19,348,791 |            |   |         | 19 |        |   |        |          |            |   |   |  |    |   |   | 102,816 |        |   |  |      |        |   |   |   |    
|                             
|                             
|                             
|                             
|                              | Exercise of Class  A common stock options                                                                                   |                                |            |             |   |              |        |           |   |          |            | 620,496    |   |         |    | 1      |   |        |           |           |   |   |   |   |   |   |         | 874    |   |  |       |       |   |   |    |    |  
|                             
|                             
|                             
|                             
|                              | Issuance of common stock  employee stock purchase plan                                                                     |                                |            |             |   |              |        |           |   |          |            | 252,429    |   |         |    |       |   |        |           |           |   |   |   |   |   |   |         | 1,938  |   |  |       |       |   |   |    |    |  
|                             
|                             
|                             
|                             
|                              | Exercise of warrants                                                                                                        |                                |            |             |   |              |        |           |   |          |            | 38,331     |   |         |    |       |   |        |           |           |   |   |   |   |   |   |         |       |   |  |       |       |   |   |    |    |  
|                             
|                             
|                             
|                             
|                              | Warrants issued with debt                                                                                                   |                                |            |             |   |              |        |           |   |          |            |           |   |         |    |       |   |        |           |           |   |   |   |   |   |   |         | 394    |   |  |       |       |   |   |    |    |  
|                             
|                             
|                             
|                             
|                              | Warrant revaluation                                                                                                         |                                |            |             |   |              |        |           |   |          |            |           |   |         |    |       |   |        |           |           |   |   |   |   |   |   |         | (2,245 | ) |  |       |       |   |   |    |    |  
|                             
|                             
|                             
|                             
|                              | Equity based compensation                                                                                                   |                                |            |             |   |              |        |           |   |          |            |           |   |         |    |       |   |        |           |           |   |   |   |   |   |   |         | (430   | ) |  |       |       |   |   |    |    |  
|                             
|                             
|                             
|                             
|                              |                                                                                                                             | Net loss                       |            |              |  |              |        |            |  |          |            |            |  |         |    |        |  |        |           |            |  |   |   |    |  |   |         |        |  |  |       |        |  |   |    |     |  | 
|                             
|                             
|                             
|                             
|                              |                                                                                                                             | Foreign translation adjustment |            |              |  |              |        |            |  |          |            |            |  |         |    |        |  |        |           |            |  |   |   |    |  |   |         |        |  |  |       |        |  |   |    |     |  | 
|                              |                                                                                                                             |                                |            |              |   |              |        |            |   |          |            |            |   |         |    |        |   |        |           |            |   |   |   |    |   |   |         |        |   |  |       |        |   |   |    |    
|                              | Comprehensive Loss                                                                                                          |                                |            |             |   |              |        |           |   |          |            |           |   |         |    |       |   |        |           |           |   |   |   |   |   |   |         |       |   |  |       |       |   |   |    |    |  
|                              |                                                                                                                             |                                |            |              |   |              |        |            |   |          |            |            |   |         |    |        |   |        |           |            |   |   |   |    |   |   |         |        |   |  |       |        |   |   |    |    
|Balance at December  31, 2000 |                                                                                                                             |                                |           |              |   | $            |       |            |   |          | 20,260,047 |            |   | $       | 20 |        |   |        |          |            |   | $ |  |    |   | $ | 103,347 |        |   |  |      |        |   | $ |   |    
|                              |                                                                                                                             |                                |            |              |   |              |        |            |   |          |            |            |   |         |    |        |   |        |           |            |   |   |   |    |   |   |         |        |   |  |       |        |   |   |    |    

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                              |                                                                                                                             |                                |        |             |   |               |         |        |         |   |     |     |     |   |        |         |         |  
|----------------------------- | --------------------------------------------------------------------------------------------------------------------------- | ------------------------------ | ------ | ----------- | - | ------------- | ------- | ------ | ------- | - | --- | --- | --- | - | ------ | ------- | ------- | -
|                              |                                                                                                                             |                                |        |             |   | Other         |         |       
|                              |                                                                                                                             | Unearned                       |        | Accumulated |   | Comprehensive |         |       
|                              |                                                                                                                             | Compensation                   |        | Deficit     |   | Loss          |         | Total 
|                              |                                                                                                                             |                                |        |             |   |               |         |       
|Balance at December  31, 1997 |                                                                                                                             | $                              |       |             |   | $             | (8,489  | )      |         | $ |    |     |     | $ | 7,075  |        
|                             
|                             
|                             
|                             
|                              | Cash proceeds from issuance of Series E Preferred Stock                                                                     |                                |        |            |   |               |         |       |         |   |     |    |     |   |        | 18,439  |        
|                             
|                             
|                             
|                             
|                              | Exercise of Series A common stock options                                                                                   |                                |        |            |   |               |         |       |         |   |     |    |     |   |        | 151     |        
|                             
|                             
|                             
|                             
|                              | Purchase of treasury stock                                                                                                  |                                |        |            |   |               |         |       |         |   |     |    |     |   |        | (1      | )      
|                             
|                             
|                             
|                             
|                              | Purchase of Series B Preferred and Class B Common Stock                                                                     |                                |        |            |   |               |         | (2,249 | )       |   |     |    |     |   |        | (2,500  | )      
|                             
|                             
|                             
|                             
|                              | Equity based compensation                                                                                                   |                                |        | (1,789      | ) |               |         |        |         |   |     |    |     |   |        | 76      |        
|                             
|                             
|                             
|                             
|                              | Net loss (which is the same as comprehensive loss)                                                                          |                                |        |            |   |               |         | (6,639 | )       |   |     |    |     |   |        | (6,639  | )      
|                              |                                                                                                                             |                                |        |             |   |               |         |        |         |   |     |     |     |   |        |        
|Balance at December  31, 1998 |                                                                                                                             |                                | (1,789 | )           |   |               | (17,377 | )      |         |   |    |     |     |   | 16,601 |        
|                             
|                             
|                             
|                             
|                              | Cash proceeds from initial public offering and concurrent
	private placement, and conversion of convertible preferred stock |                                |        |            |   |               |         |       |         |   |     |    |     |   |        | 34,096  |        
|                             
|                             
|                             
|                             
|                              | Exercise of Class  A common stock options                                                                                   |                                |        |            |   |               |         |       |         |   |     |    |     |   |        | 245     |        
|                             
|                             
|                             
|                             
|                              | Issuance of common stock  employee stock purchase plan                                                                     |                                |        |            |   |               |         |       |         |   |     |    |     |   |        | 723     |        
|                             
|                             
|                             
|                             
|                              | Exercise of warrants                                                                                                        |                                |        |            |   |               |         |       |         |   |     |    |     |   |        |        |        
|                             
|                             
|                             
|                             
|                              | Retirement of treasury stock                                                                                                |                                |        |            |   |               |         |       |         |   |     |    |     |   |        |        |        
|                             
|                             
|                             
|                             
|                              | Acquisition of Enact                                                                                                        |                                |        | (1,806      | ) |               |         |       |         |   |     |    |     |   |        | 4,053   |        
|                             
|                             
|                             
|                             
|                              | Acquisition of ACT!                                                                                                         |                                |        |            |   |               |         |       |         |   |     |    |     |   |        | 20,000  |        
|                             
|                             
|                             
|                             
|                              | Adjustment to the OPIS acquisition                                                                                          |                                |        |            |   |               |         |       |         |   |     |    |     |   |        | (41     | )      
|                             
|                             
|                             
|                             
|                              | Warrants issued                                                                                                             |                                |        |            |   |               |         |       |         |   |     |    |     |   |        | 6,233   |        
|                             
|                             
|                             
|                             
|                              | Shares issued for domain name                                                                                               |                                |        |            |   |               |         |       |         |   |     |    |     |   |        | 68      |        
|                             
|                             
|                             
|                             
|                              | Equity based compensation                                                                                                   |                                |        | 961         |   |               |         |       |         |   |     |    |     |   |        | 846     |        
|                             
|                             
|                             
|                             
|                              | Net loss (which is the same as comprehensive loss)                                                                          |                                |        |            |   |               |         | (7,506 | )       |   |     |    |     |   |        | (7,506  | )      
|                              |                                                                                                                             |                                |        |             |   |               |         |        |         |   |     |     |     |   |        |        
|Balance at December  31, 1999 |                                                                                                                             |                                | (2,634 | )           |   |               | (24,883 | )      |         |   |    |     |     |   | 75,318 |        
|                             
|                             
|                             
|                             
|                              | Exercise of Class  A common stock options                                                                                   |                                |        |            |   |               |         |       |         |   |     |    |     |   |        | 875     |        
|                             
|                             
|                             
|                             
|                              | Issuance of common stock  employee stock purchase plan                                                                     |                                |        |            |   |               |         |       |         |   |     |    |     |   |        | 1,938   |        
|                             
|                             
|                             
|                             
|                              | Exercise of warrants                                                                                                        |                                |        |            |   |               |         |       |         |   |     |    |     |   |        |        |        
|                             
|                             
|                             
|                             
|                              | Warrants issued with debt                                                                                                   |                                |        |            |   |               |         |       |         |   |     |    |     |   |        | 394     |        
|                             
|                             
|                             
|                             
|                              | Warrant revaluation                                                                                                         |                                |        |            |   |               |         |       |         |   |     |    |     |   |        | (2,245  | )      
|                             
|                             
|                             
|                             
|                              | Equity based compensation                                                                                                   |                                |        | 1,450       |   |               |         |       |         |   |     |    |     |   |        | 1,020   |        
|                             
|                             
|                             
|                             
|                              |                                                                                                                             | Net loss                       |        |             |  |               |         |        | (56,920 | ) |     |     |    |   |        |         | (56,920 | )
|                             
|                             
|                             
|                             
|                              |                                                                                                                             | Foreign translation adjustment |        |             |  |               |         |        |        |   |     |     | (20 | ) |        |         | (20     | )
|                              |                                                                                                                             |                                |        |             |   |               |         |        |         |   |     |     |     |   |        |        
|                              | Comprehensive Loss                                                                                                          |                                |        |            |   |               |         |       |         |   |     | (20 | )   |   |        | (56,940 | )      
|                              |                                                                                                                             |                                |        |             |   |               |         |        |         |   |     |     |     |   |        |        
|Balance at December  31, 2000 |                                                                                                                             | $                              | (1,184 | )           |   | $             | (81,803 | )      |         | $ | (20 | )   |     | $ | 20,360 |        
|                              |                                                                                                                             |                                |        |             |   |               |         |        |         |   |     |     |     |   |        |        

See accompanying notes.

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##### Table of Contents



INTERACT COMMERCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


|                                                                                        |                                                                                 |                                           |         |        |         |      |         |       |         |   |        |       |        |  
|--------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ----------------------------------------- | ------- | ------ | ------- | ---- | ------- | ----- | ------- | - | ------ | ----- | ------ | -
|                                                                                        |                                                                                 |                                          
|                                                                                        |                                                                                 | Year Ended December 31,                  
|                                                                                        |                                                                                 |                                          
|                                                                                        |                                                                                 | 2000                                      |         | 1999   |         | 1998
|                                                                                        |                                                                                 |                                           |         |        |         |     
|Operating activities                                                                    |                                                                                 |                                           |         |        |         |      |         |       |         |   |        |      
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Net loss                                                                                |                                                                                 | $                                         | (56,920 | )      |         | $    | (7,506  | )     |         | $ | (6,639 | )    
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Adjustments to reconcile net loss to net cash used in operating
	activities:            |                                                                                 |                                           |         |        |         |      |         |       |         |   |        |      
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                        | Depreciation, including amortization of leased assets                           |                                           |         | 6,304  |         |      |         | 1,986 |         |   |        | 787   |       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                        | Amortization of acquisition related intangible assets                           |                                           |         | 20,112 |         |      |         | 4,379 |         |   |        | 1,436 |       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                        | Provision for losses on accounts receivable                                     |                                           |         | 4,782  |         |      |         | 2,206 |         |   |        | 666   |       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                        | Warrant issuance expense                                                        |                                           |         | 394    |         |      |         |      |         |   |        | 11    |       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                        | Noncash equity compensation                                                     |                                           |         | 419    |         |      |         | 445   |         |   |        | 65    |       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                        | Accretion of discount on Symantec royalty obligation                            |                                           |         | 8,225  |         |      |         |      |         |   |        |      |       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                        | Accretion of discount on subordinated debentures                                |                                           |         | 1,979  |         |      |         |      |         |   |        |      |       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                        | Noncash interest                                                                |                                           |         | 1,807  |         |      |         |      |         |   |        |      |       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                        | Restructuring charge                                                            |                                           |         | 10,000 |         |      |         |      |         |   |        |      |       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                        | Cash paid for restructuring                                                     |                                           |         | (1,524 | )       |      |         |      |         |   |        |      |       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                        | Changes in operating assets and liabilities, net of effects from
	acquisitions: |                                           |         |        |         |      |         |       |         |   |        |       |       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                        |                                                                                 | Accounts receivable                       |         |        | (24,712 | )    |         |       | (10,006 | ) |        |       | (3,082 | )
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                        |                                                                                 | Due from Symantec Corporation             |         |        | 5,609   |      |         |       |        |   |        |       |       |  
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                        |                                                                                 | Prepaid expenses and other current assets |         |        | (142    | )    |         |       | (1,299  | ) |        |       | (350   | )
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                        |                                                                                 | Accounts payable                          |         |        | 1,820   |      |         |       | 3,911   |   |        |       | 200    |  
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                        |                                                                                 | Accrued expenses                          |         |        | 7,821   |      |         |       | 244     |   |        |       | 466    |  
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                        |                                                                                 | Deferred revenues                         |         |        | (3,226  | )    |         |       | 2,788   |   |        |       | 898    |  
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                        |                                                                                 | Deferred rental obligation                |         |        | (4      | )    |         |       |        |   |        |       | 106    |  
|                                                                                        |                                                                                 |                                           |         |        |         |      |         |       |         |   |        |      
|Net cash used in operating activities                                                   |                                                                                 |                                           | (17,256 | )      |         |      | (2,852  | )     |         |   | (5,436 | )    
|                                                                                        |                                                                                 |                                           |         |        |         |      |         |       |         |   |        |      
|Investing activities                                                                    |                                                                                 |                                           |         |        |         |      |         |       |         |   |        |      
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Purchases of property and equipment                                                     |                                                                                 |                                           | (13,046 | )      |         |      | (6,063  | )     |         |   | (1,597 | )    
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Payment for purchase of Enact, net of cash acquired                                     |                                                                                 |                                           |        |        |         |      | (5,832  | )     |         |   |       |      
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Purchases of available for sale securities                                              |                                                                                 |                                           | (5,975  | )      |         |      |        |       |         |   |       |      
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Increase in other assets                                                                |                                                                                 |                                           | (1,133  | )      |         |      | (1,037  | )     |         |   | (91    | )    
|                                                                                        |                                                                                 |                                           |         |        |         |      |         |       |         |   |        |      
|Net cash used in investing activities                                                   |                                                                                 |                                           | (20,154 | )      |         |      | (12,932 | )     |         |   | (1,688 | )    
|                                                                                        |                                                                                 |                                           |         |        |         |      |         |       |         |   |        |      
|Financing activities                                                                    |                                                                                 |                                           |         |        |         |      |         |       |         |   |        |      
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Proceeds from long-term debt                                                            |                                                                                 |                                           |        |        |         |      | 25,942  |       |         |   |       |      
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Repayments of long-term debt                                                            |                                                                                 |                                           |        |        |         |      | (1,474  | )     |         |   | (326   | )    
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Payment of Symantec royalty                                                             |                                                                                 |                                           | (15,000 | )      |         |      |        |       |         |   |       |      
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Net proceeds from initial public offering                                               |                                                                                 |                                           |        |        |         |      | 34,096  |       |         |   |       |      
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Net proceeds from line of credit                                                        |                                                                                 |                                           | 2,000   |        |         |      |        |       |         |   |       |      
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Principal payments under capital lease obligations                                      |                                                                                 |                                           | (1,027  | )      |         |      | (563    | )     |         |   | (451   | )    
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Net proceeds from issuance of preferred stock                                           |                                                                                 |                                           |        |        |         |      |        |       |         |   | 18,439 |      
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Purchase of Series B preferred and Class B common stock                                 |                                                                                 |                                           |        |        |         |      |        |       |         |   | (2,500 | )    
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Purchase of treasury stock                                                              |                                                                                 |                                           |        |        |         |      |        |       |         |   | (1     | )    
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Proceeds from employee stock purchase plan                                              |                                                                                 |                                           | 1,938   |        |         |      | 723     |       |         |   |       |      
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Issuance of warrants                                                                    |                                                                                 |                                           |        |        |         |      | 6,233   |       |         |   |       |      
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Proceeds from exercise of common stock options                                          |                                                                                 |                                           | 875     |        |         |      | 245     |       |         |   | 151    |      
|                                                                                        |                                                                                 |                                           |         |        |         |      |         |       |         |   |        |      
|Net cash provided by (used in) financing activities                                     |                                                                                 |                                           | (11,214 | )      |         |      | 65,202  |       |         |   | 15,312 |      
|                                                                                        |                                                                                 |                                           |         |        |         |      |         |       |         |   |        |      
|Net increase (decrease) in cash and cash equivalents                                    |                                                                                 |                                           | (48,624 | )      |         |      | 49,418  |       |         |   | 8,188  |      
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Cash and cash equivalents, beginning of period                                          |                                                                                 |                                           | 60,795  |        |         |      | 11,377  |       |         |   | 3,189  |      
|                                                                                        |                                                                                 |                                           |         |        |         |      |         |       |         |   |        |      
|Cash and cash equivalents, end of period                                                |                                                                                 | $                                         | 12,171  |        |         | $    | 60,795  |       |         | $ | 11,377 |      
|                                                                                        |                                                                                 |                                           |         |        |         |      |         |       |         |   |        |      
|Supplemental cash flow information                                                      |                                                                                 |                                           |         |        |         |      |         |       |         |   |        |      
|                                                                                       
|                                                                                       
|                                                                                       
|                                                                                       
|Assets acquired under capital lease obligations                                         |                                                                                 | $                                         | 1,461   |        |         | $    | 2,894   |       |         | $ | 607    |      
|                                                                                        |                                                                                 |                                           |         |        |         |      |         |       |         |   |        |      
|Intangible assets acquired with common and preferred stock and
	preferred stock options |                                                                                 | $                                         |        |        |         | $    | 24,053  |       |         | $ |       |      
|                                                                                        |                                                                                 |                                           |         |        |         |      |         |       |         |   |        |      
|Cash paid for interest                                                                  |                                                                                 | $                                         | 7,598   |        |         | $    | 160     |       |         | $ | 255    |      
|                                                                                        |                                                                                 |                                           |         |        |         |      |         |       |         |   |        |      

See accompanying notes.

40



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##### Table of Contents



INTERACT COMMERCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2000


1.  Summary of Significant Accounting Policies

Description of Business

Interact Commerce Corporation (Company) is a leading
provider of relationship management software for small to
mid-sized organizations. The company builds products that are
easy to use, quick to deploy, and provide anytime, anywhere
access to critical information. The Companys product lines
include SalesLogix, a mid-market customer relationship
management product, and ACT!, a contact management product.
Prior to April 2000, the Company was known as SalesLogix
Corporation.

Basis of Presentation

The Company has incurred operating losses since inception and
incurred an operating loss of $44.8 million and a net loss of
$56.9 million during the year ended December 31, 2000. To
improve its operating results and move toward a stronger
financial position, management eliminated its unprofitable
Interact.com operations and eliminated additional operating
costs. The Company also obtained a $20 million line-of-credit in
March of 2001 to provide additional financial resources to meet
its operating needs. Management believes that the elimination of
certain operating costs coupled with the available amounts under
its $20 million line-of-credit will provide adequate financial
resources for the Company to carry out its operating plan
through at least December 31, 2001.

Basis of Consolidation

The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. Significant
intercompany accounts and transactions have been eliminated in
consolidation.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid
investments with original maturities of three months or less
when acquired and which are readily convertible to cash. The
Companys investments have consisted of commercial paper,
certificates of deposit with original maturities of three months
or less and money market accounts.

Short-term Investments

Short-term investments at December 31, 2000 consist of
commercial paper and U.S. Government agency debt and equity
securities. The Company classifies its debt and equity
securities as available-for-sale. These securities are reported
at fair market value and any unrealized gains and losses, net of
applicable tax effects, are included in stockholders
equity. Realized gains and losses and declines in value judged
to be other-than-temporary are included in interest income.
Premiums and discounts are amortized or accreted over the life
of the related available-for-sale security as an adjustment to
yield using the effective method. Dividend and interest income
are recognized when earned.

Fair Value of Financial Instruments

At December 31, 2000, the Company has the following
financial instruments: cash and cash equivalents, short-term
investments, accounts receivable, accounts payable, accrued
expenses, capital lease obligations, the Symantec royalty
obligation, and long-term debt. The carrying value of cash and
cash equivalents, short-term investments, accounts receivable,
accounts payable and accrued expenses approximates their fair
value based on the liquidity of these financial instruments or
based on their short-term nature. The carrying value of capital
lease obligations and long-term debt approximates fair value
based on the market interest rates available to the Company for
debt of similar risk and maturities. Based on the Companys
current incremental

41



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INTERACT COMMERCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

borrowing rate, the fair value of the Symantec royalty
obligation is approximately $39.9 million at December 31,
2000, compared to a carrying value of $34.2 million.

Concentration of Credit Risk and Major Customers

Financial instruments that potentially subject the Company to a
concentration of credit risk consist principally of accounts
receivable. The Companys customer base is dispersed across
many different geographic areas throughout North America, Europe
and Asia Pacific and consists of companies in a variety of
industries. No single customer accounted for 10% or more of
total revenues during 1998 or 1999. One customer, Ingram Micro,
accounted for 19% of total revenues for the year ended
December 31, 2000. This customer accounted for 18% of the
outstanding accounts receivable at December 31, 2000. The
Company does not require collateral or other security to support
credit sales, but provides an allowance for bad debts based on
historical experience and specifically identified risks.

Property and Equipment

Property and equipment are stated at cost. Equipment held under
capital leases is stated at the lower of fair market value or
the present value of minimum lease payments at the inception of
the lease. Depreciation of property and equipment is calculated
using the straight-line method over the estimated useful lives
of the assets, generally three years for computers and other
equipment. Prior to 2000 depreciation of furniture and fixtures
was calculated using the straight-line method over a useful life
of three years. For furniture and fixtures placed into service
after January 1, 2000, the Company began calculating
depreciation using the straight-line method over a useful life
of five years. The change in accounting estimate does not have a
material effect on the consolidated financial statements as of
December 31, 2000. Equipment held under capital leases is
amortized over the shorter of the lease term or estimated useful
life of the asset.

Impairment of Long-Lived Assets

In accordance with Statement of Financial Accounting Standards
(SFAS) No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, the Company records impairment losses on
long-lived assets used in operations when events and
circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets. This
methodology includes intangible assets acquired. Goodwill
relating to specific intangible assets is included in the
related impairment measurements to the extent it is identified
with such assets.

Revenue Recognition and Deferred Revenue

The Company recognizes software license revenue when either an
executed license agreement, unconditional purchase order or
contract is received, delivery of the product has occurred,
collection of the resulting receivable is assessed as probable,
and the fee is fixed or determinable based upon vendor-specific
evidence of the arrangement.

License revenue from all distribution and reseller channel
inventory in excess of defined inventory levels in these
channels has been deferred. Certain of the Companys
distribution contracts provide for the right of return. Reserves
for product returns are estimated and recorded in accordance
with Statement of Accounting Standards No. 48,
Revenue Recognition When Right of Return Exists.

Revenue from services includes support and maintenance service
contracts that are recorded as deferred revenue when billed and
recognized ratably over the contract period. Training and
consulting services are recognized as the services are performed.

42



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##### Table of Contents



INTERACT COMMERCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Costs of Revenues

Cost of licenses includes the cost of media, product packaging,
documentation and other production costs and third-party
royalties.

Cost of services consists primarily of salaries, related taxes
and benefits and allocated overhead costs related to consulting,
training and customer support personnel.

Research and Development

Research and development costs, which consist primarily of
software development costs, are expensed as incurred. Financial
accounting standards provide for the capitalization of certain
software development costs after technological feasibility of
the software is established. Prior to 2000, under the
Companys methodology for development of new products and
enhancements, the technological feasibility of the underlying
software was not established until substantially all product
development was complete, including the development of a working
model.

Subsequent to the acquisition of ACT! on December 31, 1999,
the Company began incurring costs that were eligible for
capitalization. During 2000, the Company capitalized $693,000
relating to consulting costs for the development of enhancements
to the ACT! product. Amortization of these costs will begin when
the product is available for general release and will be
provided on a straight-line basis over an estimated useful life
of two years.

Advertising Costs

The production costs of advertising are expensed upon first
viewing. Advertising expense was approximately $1.2 million,
$1.5 million and $10.4 million for the years ended
December 31, 1998, 1999 and 2000, respectively. Prepaid
advertising included in prepaid expenses was $450,000 at
December 31, 1999 and $43,000 at December 31, 2000.

Income Taxes

Income taxes have been accounted for under the asset and
liability method in accordance with SFAS No. 109,
Accounting for Income Taxes. Under the asset and
liability method of SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS No. 109,
the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date.

Earnings Per Share Computation

Earnings per share is computed in accordance with SFAS
No. 128, Earnings per Share, as well as Staff
Accounting Bulletin No. 98, which covers the determination
of and accounting for cheap stock in periods prior
to an initial public offering. Basic earnings per share is
computed using the weighted average number of common shares.
Diluted earnings per share is computed using the weighted
average number of common share equivalents outstanding during
the period.

Dilutive common share equivalents consist of stock options and
warrants using the treasury method and dilutive convertible
securities using the if-converted method.

Foreign Currency Translation

Through December 31, 1999, the functional currency for the
Companys foreign transactions was the U.S. Dollar.
All income and expense items were translated at the prevailing
exchange rate when the transaction occurred. Gains and losses on
foreign currency transactions were included in the consolidated

43



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INTERACT COMMERCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

statement of operations as incurred. Beginning in 2000 the
functional currencies for our European, German, Singapore and
Australian operations are Pounds Sterling, Euro, Singapore
Dollar, and Australian Dollars, respectively. All income and
expense items are translated using a monthly average. Gains and
losses on foreign currency transactions are included in the
stockholders equity section of the balance sheet.

Stock-Based Compensation

The Company has elected to follow the Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25), and related interpretations, in
accounting for its employee stock options rather than the
alternative fair value accounting allowed by SFAS No. 123
Accounting for Stock-Based Compensation (SFAS
No. 123). APB 25 provides that no compensation expense
is recognized on employee stock option grants when the exercise
price of such grants is equal to or greater than the market
value of the Companys stock.

Use of Estimates

The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts of assets
and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

Comprehensive Loss

The Company reports comprehensive loss in accordance with SFAS
No. 130, Reporting Comprehensive Income, which
establishes standards for reporting and display of comprehensive
loss and its components in the financial statements. The Company
has elected to disclose comprehensive loss in the consolidated
statement of stockholders equity.

Segments of an Enterprise and Related Information

The Company reports segment information in accordance with SFAS
No. 131, Disclosures about Segments of an Enterprise
and Related Information.

Impact of Recently Issued Accounting Standards

The Company adopted Financial Accounting Standards Board issued
Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS No. 133) on
January 1, 2000. SFAS No. 133 requires the Company to
recognize all derivatives on the balance sheet at fair value.
The adoption of SFAS No. 133 did not have a significant
effect on its results of operations, financial position, or cash
flows.

Reclassifications

Certain reclassifications have been made to the 1998 and 1999
consolidated financial statements to conform to the 2000
presentation.

2.  Acquisitions

On April 30, 1999, the Company acquired Enact Incorporated
(Enact), a provider of sales configuration software
for managing product catalogs and marketing encyclopedias and
generating proposals, quotes, and orders. The Company paid $4.2
million in cash and issued 609,424 shares of common stock, of
which 201,893 shares are subject to three year monthly vesting.
In connection with the acquisition, the Company incurred direct
acquisition related expenses of approximately $1.4 million. Upon
consummation of the transaction, Enact was merged into a
wholly-owned subsidiary of the Company.

44



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##### Table of Contents



INTERACT COMMERCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

On December 31, 1999, the Company acquired the ACT! product
line and related business (ACT!) from Symantec
Corporation pursuant to an agreement dated December 6,
1999, as amended and closed on December 31, 1999. Under the
terms of the agreement, the Company acquired an exclusive,
worldwide license to ACT! and an option to purchase the product
line at the end of the four year license term for an aggregate
purchase price of $60.0 million in cash, plus 623,247 shares of
the Companys common stock valued at $20.0 million. Amounts
due to Symantec are based on a contractual formula and are
subject to maximums of $5.0 million per quarter in 2000, $4.25
million per quarter in 2001, $2.75 million per quarter in 2002,
and $2.25 million per quarter in 2003. The maximum quarterly
payment amounts total $57.0 million, and the Company believes
the limits will be reached in each quarter during the four year
term of the agreement. The final payment is equal to $60.0
million less amounts previously paid. The cash portion of the
purchase price has been discounted at 22.4% to reflect the
Companys incremental borrowing rate in a simultaneous
third party borrowing transaction. The Company has also assumed
certain deferred revenue obligations for which Symantec will
provide reimbursement.

The acquisitions of Enact and ACT! were recorded using the
purchase method of accounting. The results of operations of
Enact and ACT! and the fair values of the acquired assets and
liabilities were included in the Companys financial
statements beginning on the acquisition date.

The purchase prices of Enact and ACT! have been allocated to the
assets acquired and liabilities assumed as follows:

|                                                 |  |       |       |      |  |   |        | 
|------------------------------------------------ |  | ----- | ----- | ---- |  | - | ------ | 
|                                                 |  | Enact |       | ACT!
|                                                 |  |       |       |     
|Purchased technology                             |  | $     | 2,800 |      |  | $ | 37,128 | 
|                                                
|                                                
|                                                
|                                                
|Customer list and other                          |  |       |      |      |  |   | 24,752 | 
|                                                
|                                                
|                                                
|                                                
|Goodwill                                         |  |       | 5,969 |      |  |   |       | 
|                                                
|                                                
|                                                
|                                                
|Write-off of in-process research and development |  |       | 900   |      |  |   |       | 
|                                                 |  |       |       |      |  |   |        | 
|                                                 |  | $     | 9,669 |      |  | $ | 61,880 | 
|                                                 |  |       |       |      |  |   |        | 

The Company received an independent appraisal of the intangible
assets acquired from Enact. This appraisal indicated that
approximately $900,000 of the acquired intangible assets from
Enact were in-process research and development that had not yet
reached technological feasibility. Because there can be no
assurance that the Company will be able to successfully complete
the development and integration of the in-process research and
development into its suite of software products or that the
acquired technology has any alternative future use, the acquired
in-process research and development was charged to expense upon
acquisition. The write off of in-process research and
development of $0 in 1998, $900,000 in 1999, and $0 in 2000 has
been included in amortization of acquisition-related intangibles
in the statements of operations.

The pro forma results of operations set forth below have been
prepared to reflect the acquisitions of Enact and ACT!, assuming
both acquisitions had occurred on January 1, 1998.

|                                     |  |                           |         |      |  |   |         |  
|------------------------------------ |  | ------------------------- | ------- | ---- |  | - | ------- | -
|                                     |  |                          
|                                     |  | Pro Forma                
|                                     |  | For the Year Ended       
|                                     |  | December 31,             
|                                     |  |                          
|                                     |  | 1999                      |         | 1998
|                                     |  |                           |         |     
|                                     |  |                          
|                                     |  | (in thousands, except per
|                                     |  | share data)              
|                                     |  | (unaudited)              
|                                    
|                                    
|                                    
|                                    
|Total revenues                       |  | $                         | 74,261  |      |  | $ | 58,417  |  
|                                     |  |                           |         |      |  |   |         |  
|Net loss                             |  | $                         | (25,767 | )    |  | $ | (25,653 | )
|                                     |  |                           |         |      |  |   |         |  
|Basic and diluted net loss per share |  | $                         | (1.45   | )    |  | $ | (1.89   | )
|                                     |  |                           |         |      |  |   |         |  

45



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##### Table of Contents



INTERACT COMMERCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

The unaudited pro forma results of operations do not purport to
present what the Companys financial position or results of
operations would actually have been had the events leading to
the pro forma adjustments in fact occurred on the date or at the
beginning of the periods indicated or to project the
Companys financial position or results of operations for
any future date or period.

ACT! was not a subsidiary or a reportable segment of Symantec.
Symantec maintained separate accounts to capture research and
development and certain product specific marketing activities of
ACT!. Symantec did not maintain separate accounts to capture
corporate services, information services, selling, other
marketing, or general and administrative expenses incurred at
the corporate level and allocated to ACT! by Symantec.
Symantecs cost of revenue includes the direct
manufacturing costs of the ACT! product, royalties, and the
allocation of various manufacturing overhead costs to the ACT!.
The costs included above include the expenses attributed to ACT!
by Symantec as well as the additional expenses the Company
estimates it would have incurred had it run ACT! since
January 1, 1998. These costs are not necessarily indicative
of the costs that would have been incurred if the Company had
operated the business for the periods presented. The expenses
charged ACT! by Symantec are not necessarily indicative of the
expenses that would have been incurred had ACT! operated as a
stand-alone business.

3.  Restructuring Charge

On October 21, 2000, the Company recorded a charge of $10.0
million related to the closure of Interact.com. Interact.com was
an Internet-based product for salespeople. The restructuring was
the result of the unprofitability and lack of market acceptance
of Interact.com. This restructuring eliminated redundant and
unnecessary positions and resulted in a reduction in our
workforce of approximately 13 percent. Equipment used for
the Interact.com venture was written off as part of the
restructuring, and the cost of rent for facilities that are to
be closed was accrued.

Fixed asset write down represents the difference between
depreciated costs and fair value of the equipment used for the
Interact.com product. Employee termination benefits include
severance and medical and other benefits. Office closure
includes the cost of lease termination. Contract termination
cost includes the costs of terminating contracts specific to
Interact.com.

The restructuring charge is summarized as follows:

|                          |  |                 |        |             |  |            |       |  |  |   |       | 
|------------------------- |  | --------------- | ------ | ----------- |  | ---------- | ----- |  |  | - | ----- | 
|                          |  | Charged to      |        | Utilized in |  | Balance at
|                          |  | Expense in 2000 |        | 2000        |  | 12/31/00  
|                          |  |                 |        |             |  |           
|                          |  |                
|                          |  | (in thousands) 
|                         
|                         
|                         
|                         
|Fixed asset write down    |  | $               | 4,271  |             |  | $          | 4,271 |  |  | $ |      | 
|                         
|                         
|                         
|                         
|Employee termination      |  |                 | 961    |             |  |            | 505   |  |  |   | 456   | 
|                         
|                         
|                         
|                         
|Office closure costs      |  |                 | 1,200  |             |  |            | 283   |  |  |   | 917   | 
|                         
|                         
|                         
|                         
|Contract termination cost |  |                 | 3,568  |             |  |            | 1,692 |  |  |   | 1,876 | 
|                          |  |                 |        |             |  |            |       |  |  |   |       | 
|Restructuring charge      |  | $               | 10,000 |             |  | $          | 6,751 |  |  | $ | 3,249 | 
|                          |  |                 |        |             |  |            |       |  |  |   |       | 

4.  Short-term Investments

As of December 31, 2000, short-term investments consisted
of the following:

|                         |  |                |       | 
|------------------------ |  | -------------- | ----- | 
|                         |  | Amortized Cost
|                         |  |               
|                         |  | (in thousands)
|                        
|                        
|                        
|                        
|Available for sale:      |  |                |       | 
|                        
|                        
|                        
|                        
|Commercial paper         |  | $              | 2,992 | 
|                        
|                        
|                        
|                        
|U.S. government agencies |  |                | 2,983 | 
|                         |  |                |       | 
|                         |  | $              | 5,975 | 
|                         |  |                |       | 

46



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##### Table of Contents



INTERACT COMMERCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

The aggregate fair value of the short-term investments
approximated amortized cost.

5.  Property and Equipment

Property and equipment consisted of the following:

|                                               |  |                |        |      |  |   |        | 
|---------------------------------------------- |  | -------------- | ------ | ---- |  | - | ------ | 
|                                               |  |               
|                                               |  | December 31,  
|                                               |  |               
|                                               |  | 2000           |        | 1999
|                                               |  |                |        |     
|                                               |  |               
|                                               |  | (in thousands)
|                                              
|                                              
|                                              
|                                              
|Furniture and fixtures                         |  | $              | 3,493  |      |  | $ | 1,577  | 
|                                              
|                                              
|                                              
|                                              
|Computers and other equipment                  |  |                | 16,588 |      |  |   | 10,809 | 
|                                              
|                                              
|                                              
|                                              
|Leasehold improvements                         |  |                | 767    |      |  |   | 153    | 
|                                               |  |                |        |      |  |   |        | 
|                                               |  |                | 20,848 |      |  |   | 12,539 | 
|                                              
|                                              
|                                              
|                                              
|Less accumulated depreciation and amortization |  |                | 7,039  |      |  |   | 2,832  | 
|                                               |  |                |        |      |  |   |        | 
|                                               |  | $              | 13,809 |      |  | $ | 9,707  | 
|                                               |  |                |        |      |  |   |        | 

6.  Intangible Assets

Intangible assets consisted of the following:

|                                             |  |                |        |      |  |   |        | 
|-------------------------------------------- |  | -------------- | ------ | ---- |  | - | ------ | 
|                                             |  |               
|                                             |  | December 31,  
|                                             |  |               
|                                             |  | 2000           |        | 1999
|                                             |  |                |        |     
|                                             |  |               
|                                             |  | (in thousands)
|                                            
|                                            
|                                            
|                                            
|Purchased technology                         |  | $              | 41,128 |      |  | $ | 41,128 | 
|                                            
|                                            
|                                            
|                                            
|Customer list and other                      |  |                | 25,072 |      |  |   | 25,072 | 
|                                            
|                                            
|                                            
|                                            
|Goodwill                                     |  |                | 10,350 |      |  |   | 10,350 | 
|                                             |  |                |        |      |  |   |        | 
|                                             |  |                | 76,550 |      |  |   | 76,550 | 
|                                            
|                                            
|                                            
|                                            
|Less accumulated amortization                |  |                | 24,011 |      |  |   | 4,501  | 
|                                             |  |                |        |      |  |   |        | 
|Net intangible assets of acquired businesses |  | $              | 52,539 |      |  | $ | 72,049 | 
|                                             |  |                |        |      |  |   |        | 

Purchased technology, goodwill, customer lists, and other
intangibles are stated at cost and are amortized over their
estimated useful lives of three to five years using the
straight-line method.

7.  Accrued Expenses

Accrued expenses consisted of the following:

|                            |  |                |        |      |  |   |       | 
|--------------------------- |  | -------------- | ------ | ---- |  | - | ----- | 
|                            |  |               
|                            |  | December 31,  
|                            |  |               
|                            |  | 2000           |        | 1999
|                            |  |                |        |     
|                            |  |               
|                            |  | (in thousands)
|                           
|                           
|                           
|                           
|Compensation                |  | $              | 4,085  |      |  | $ | 1,239 | 
|                           
|                           
|                           
|                           
|Benefits                    |  |                | 1,038  |      |  |   | 879   | 
|                           
|                           
|                           
|                           
|Direct costs of acquisition |  |                |       |      |  |   | 502   | 
|                           
|                           
|                           
|                           
|Distributor rebates         |  |                | 2,009  |      |  |   |      | 
|                           
|                           
|                           
|                           
|Interest expense            |  |                | 943    |      |  |   |      | 
|                           
|                           
|                           
|                           
|Royalties                   |  |                | 760    |      |  |   | 71    | 
|                           
|                           
|                           
|                           
|Other                       |  |                | 2,129  |      |  |   | 452   | 
|                            |  |                |        |      |  |   |       | 
|                            |  | $              | 10,964 |      |  | $ | 3,143 | 
|                            |  |                |        |      |  |   |       | 

47



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##### Table of Contents



INTERACT COMMERCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

8.  Line of Credit

The Company has a revolving line of credit with a commercial
bank in the amount of $4.0 million that is subject to renewal on
April 27, 2001. Borrowings under the line of credit are
collateralized by substantially all of the Companys assets
and bear interest at the banks prime rate plus 0.5%. The
agreement provides for certain financial and other covenants. As
of December 31, 2000, the Company had outstanding advances
under the revolving line of credit of $2.0 million. Subsequent
to December 31, 2000, this line was repaid and replaced.
See Note 19.

9.  Long-term Debt

Long-term debt consisted of the following:

|                                                                                                                                                                                           |  |                |        |      |  |   |        | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------- | ------ | ---- |  | - | ------ | 
|                                                                                                                                                                                           |  |               
|                                                                                                                                                                                           |  | December 31,  
|                                                                                                                                                                                           |  |               
|                                                                                                                                                                                           |  | 2000           |        | 1999
|                                                                                                                                                                                           |  |                |        |     
|                                                                                                                                                                                           |  |               
|                                                                                                                                                                                           |  | (in thousands)
|                                                                                                                                                                                          
|                                                                                                                                                                                          
|                                                                                                                                                                                          
|                                                                                                                                                                                          
|Senior subordinated debt, due December 31, 2004, stated
	interest at 11% payable quarterly, net of unamortized discount
	of $2,304 and $6,558 at December 31, 2000 and 1999,
	respectively |  | $              | 31,974 |      |  | $ | 25,942 | 
|                                                                                                                                                                                           |  |                |        |      |  |   |        | 
|                                                                                                                                                                                           |  | $              | 31,974 |      |  | $ | 25,942 | 
|                                                                                                                                                                                           |  |                |        |      |  |   |        | 

On December 31, 1999, the Company borrowed $32,500,000 of
senior subordinated debt (the Subordinated Debt).
The first two interest payments in 2000 were made in
kind by increasing the principal balance by the amount of
interest due. The Company paid a 1% commitment fee on the
Subordinated Debt and issued warrants to purchase 841,107 shares
of the Companys common stock at an initial price of $28.75
per share to the lenders. Warrants to purchase an additional
630,198 shares of the Companys common stock were issued to
the lenders in 2000 pursuant to the loan document. In accordance
with existing provisions in the loan agreement, on
August 31, 2000, the strike price of all outstanding
warrants was reduced to $11.39 per share. Warrants to purchase
an additional 2.847% of the Companys fully diluted shares,
as defined, are due to the lenders, pursuant to the loan
document, if the debt remains outstanding by April 2, 2001.
The estimated fair value of these warrants, determined using the
Black Scholes method, as well as the commitment fee, have been
recorded as a discount to the debt and credit to equity, and are
being amortized to interest expense using the interest method
over the term of the loan. During 2000 the debt discount was
revalued as a result of a change in the fair value of the
warrants with a corresponding reversal of the original credit to
equity for the issuance. The effective interest rate on the
Subordinated Debt, including amortization of this discount, was
22.4% at December 31, 1999 and 14.2% at December 31,
2000. The warrants are exercisable on a net basis, and the
warrant holders have certain registration rights.

10.  Net Present Value of Symantec Royalty
Payments

Net present value of Symantec royalty payments consisted of the
following:

|                                                                                                                                                                                                  |  |                |        |      |  |   |        | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------ | ---- |  | - | ------ | 
|                                                                                                                                                                                                  |  |               
|                                                                                                                                                                                                  |  | December 31,  
|                                                                                                                                                                                                  |  |               
|                                                                                                                                                                                                  |  | 2000           |        | 1999
|                                                                                                                                                                                                  |  |                |        |     
|                                                                                                                                                                                                  |  |               
|                                                                                                                                                                                                  |  | (in thousands)
|                                                                                                                                                                                                 
|                                                                                                                                                                                                 
|                                                                                                                                                                                                 
|                                                                                                                                                                                                 
|Payable for purchase of ACT!, no stated interest, quarterly
	payments through December 31, 2003, net of unamortized
	discount of $10,836 and $19,060 at December 31, 2000 and
	1999, respectively |  | $              | 34,163 |      |  | $ | 40,940 | 
|                                                                                                                                                                                                  |  |                |        |      |  |   |        | 

The payable for the purchase of ACT! does not have a stated
interest rate. Quarterly payments of $5,000,000 in 2000,
$4,250,000 in 2001, $2,750,000 in 2002, and $2,250,000 in 2003
and one payment of

48



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##### Table of Contents



INTERACT COMMERCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

$3,000,000 in 2004 have been discounted at 22.4% to reflect the
Companys borrowing rate on the concurrent Subordinated
Debt financing. At December 31, 2000 the balance included
the $5,000,000 payment due December 31, 2000 which has been
paid in January 2001.

11.  Leases

The Company leases furniture and equipment under capital leases
that expire in various years through 2005. The Company also
leases office facilities under noncancelable operating leases
that expire in various years through 2008.

Property and equipment includes the following amounts for leases
that have been capitalized:

|                              |  |                |       |      |  |   |       | 
|----------------------------- |  | -------------- | ----- | ---- |  | - | ----- | 
|                              |  |               
|                              |  | December 31,  
|                              |  |               
|                              |  | 2000           |       | 1999
|                              |  |                |       |     
|                              |  |               
|                              |  | (in thousands)
|                             
|                             
|                             
|                             
|Furniture and equipment       |  | $              | 1,755 |      |  | $ | 4,399 | 
|                             
|                             
|                             
|                             
|Less accumulated amortization |  |                | 626   |      |  |   | 1,088 | 
|                              |  |                |       |      |  |   |       | 
|                              |  | $              | 1,129 |      |  | $ | 3,311 | 
|                              |  |                |       |      |  |   |       | 

Amortization of leased assets is included in operating expenses
in the accompanying consolidated statements of operations.

Future minimum annual payments under capital leases and
noncancelable operating leases with initial terms of one year or
more consisted of the following at December 31, 2000:

|                                                                                   |  |                |       |           |  |   |        | 
|---------------------------------------------------------------------------------- |  | -------------- | ----- | --------- |  | - | ------ | 
|                                                                                   |  | Capital        |       | Operating
|                                                                                   |  | Leases         |       | Leases   
|                                                                                   |  |                |       |          
|                                                                                   |  |               
|                                                                                   |  | (in thousands)
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|2001                                                                               |  | $              | 1,428 |           |  | $ | 5,287  | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|2002                                                                               |  |                | 1,300 |           |  |   | 4,790  | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|2003                                                                               |  |                | 840   |           |  |   | 4,795  | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|2004                                                                               |  |                | 365   |           |  |   | 3,256  | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|2005                                                                               |  |                | 224   |           |  |   | 1,031  | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Thereafter                                                                         |  |                |      |           |  |   | 2,393  | 
|                                                                                   |  |                |       |           |  |   |        | 
|Total minimum lease payments                                                       |  |                | 4,157 |           |  | $ | 21,552 | 
|                                                                                   |  |                |       |           |  |   |        | 
|Amounts representing interest                                                      |  |                | 486   |           |  |   |        | 
|                                                                                   |  |                |       |           |  |   |        | 
|Present value of net minimum lease payments (including current
	portion of $1,164) |  | $              | 3,671 |           |  |   |        | 
|                                                                                   |  |                |       |           |  |   |        | 

Total rent expense for the operating leases amounted to
approximately $685,000, $1.4 million and $4.0 million for the
years ended December 31, 1998, 1999 and 2000, respectively.
The Company has pledged certificates of deposit to secure lease
obligations of approximately $1.2 million.

12.  Capital Stock

In May 1999, the Companys initial public offering
became effective. The Company sold 3,823,750 shares of common
stock at an offering price of $9.00 per share in the offering
and 402,994 shares of common stock at a purchase price of $8.685
in a concurrent private placement. Net proceeds from the
offering and private placement were approximately $34.1 million.

49



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##### Table of Contents



INTERACT COMMERCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Prior to its initial public offering, the Company had
Series A, B, C, D and E preferred stock and Class A
and B common stock outstanding. Each share of Series A, B,
C, D and E preferred stock had a par value of $.001 per share
and was convertible, at the option of the holder, into
two-thirds of a share of Class A common stock (Class B
common stock for the Series B preferred stockholders). All
Series A, B, C, D and E preferred stock and Class B common
stock automatically converted into Class A common stock
upon closing of the Companys initial public offering in
May 1999.

The company had the following shares of Class A common
stock reserved for future issuance:

|                                             |  |              |           |      |  |  |           | 
|-------------------------------------------- |  | ------------ | --------- | ---- |  |  | --------- | 
|                                             |  |             
|                                             |  | December 31,
|                                             |  |             
|                                             |  | 2000         |           | 1999
|                                             |  |              |           |     
|1996 Equity Incentive Plan                   |  |              | 5,181,872 |      |  |  | 3,104,832 | 
|                                            
|                                            
|                                            
|                                            
|Subordinated Debt warrants                   |  |              | 2,238,914 |      |  |  | 2,057,869 | 
|                                            
|                                            
|                                            
|                                            
|1999 Employee Stock Purchase Plan            |  |              | 119,078   |      |  |  | 205,547   | 
|                                            
|                                            
|                                            
|                                            
|1999 Non-Employee Director Stock Option Plan |  |              | 254,690   |      |  |  | 200,000   | 
|                                            
|                                            
|                                            
|                                            
|1998 Business Partner Stock Option Plan      |  |              | 96,277    |      |  |  | 101,777   | 
|                                            
|                                            
|                                            
|                                            
|Series A preferred stock warrants            |  |              |          |      |  |  | 43,334    | 
|                                            
|                                            
|                                            
|                                            
|Series D preferred stock options             |  |              | 4,782     |      |  |  | 53,105    | 
|                                            
|                                            
|                                            
|                                            
|Other warrants                               |  |              | 200,000   |      |  |  |          | 
|                                             |  |              |           |      |  |  |           | 
|Total                                        |  |              | 8,095,613 |      |  |  | 5,766,464 | 
|                                             |  |              |           |      |  |  |           | 

13.  Stock Options

The Company has elected to follow APB 25 in accounting for its
employee stock options. Under APB 25, as long as the exercise
price of the Companys employee stock options equals or
exceeds the fair value of the underlying stock on the date of
the grant, no compensation expense is recognized. All of the
Companys employee stock option grants have been made at
fair value for accounting purposes with the exception of certain
1998 grants, the largest of which was a December 10, 1998
grant of 442,000 shares at $1.53 per share. Subsequent to the
date of grant, the Company determined that the fair value for
accounting purposes at the date of grant should have been $4.50
per share. This determination was based upon third party
transactions subsequent to but near the date of grant. The
Company also had additional grants at $1.53 from June to
October 1998 for which the fair value for accounting
purposes was determined to be higher by $0.97 to $1.97 per
share. As a result, the Company recorded unearned compensation
of $1,856,377, which is being amortized over the four-year
vesting period of these options.

The Company has an equity incentive plan for certain employees,
directors, consultants and independent contractors (1996
Plan). Under the 1996 Plan, options to purchase stock of
the Company are granted to participants at an exercise price to
be determined by the Board. Generally, incentive stock options
granted under the plan may be granted to employees only and may
not have an exercise price less than the fair market value of
the stock as of the date of the grant. Incentive stock options
have a term of ten years and are exercisable over four years
commencing on the one-year anniversary of the employees
hire date.

50



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##### Table of Contents



INTERACT COMMERCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

Option activity under the 1996 Plan is as follows:

|                                 |  |        |            |                |  |          |              |  |  |   |       | 
|-------------------------------- |  | ------ | ---------- | -------------- |  | -------- | ------------ |  |  | - | ----- | 
|                                 |  |        |            |                |  | Weighted
|                                 |  |        |            |                |  | Average 
|                                 |  |        |            |                |  | Exercise
|                                 |  | Shares |            | Exercise Price |  | Price   
|                                 |  |        |            |                |  |         
|Outstanding at December 31, 1997 |  |        | 2,106,857  |                |  |          | .15-.48      |  |  |   | .19   | 
|                                
|                                
|                                
|                                
|Granted                          |  |        | 911,171    |                |  |          | .60-1.53     |  |  |   | 1.37  | 
|                                
|                                
|                                
|                                
|Exercised                        |  |        | (988,930   | )              |  |          | .15-.48      |  |  |   | .15   | 
|                                
|                                
|                                
|                                
|Expired or canceled              |  |        | (374,752   | )              |  |          | .15-1.53     |  |  |   | .50   | 
|                                 |  |        |            |                |  |          |              |  |  |   |       | 
|Outstanding at December 31, 1998 |  |        | 1,654,346  |                |  |          | .15-1.53     |  |  |   | .80   | 
|                                
|                                
|                                
|                                
|Granted                          |  |        | 1,728,220  |                |  |          | 9.00-42.75   |  |  |   | 16.42 | 
|                                
|                                
|                                
|                                
|Exercised                        |  |        | (390,176   | )              |  |          | .15-9.00     |  |  |   | .42   | 
|                                
|                                
|                                
|                                
|Expired or canceled              |  |        | (156,334   | )              |  |          | .20-21.38    |  |  |   | 6.26  | 
|                                 |  |        |            |                |  |          |              |  |  |   |       | 
|Outstanding at December 31, 1999 |  |        | 2,836,056  |                |  |          | .15-42.75    |  |  |   | 10.07 | 
|                                
|                                
|                                
|                                
|Granted                          |  |        | 3,334,420  |                |  |          | 7.13-41.13   |  |  |   | 19.06 | 
|                                
|                                
|                                
|                                
|Exercised                        |  |        | (552,762   | )              |  |          | .15-15.00    |  |  |   | 1.28  | 
|                                
|                                
|                                
|                                
|Expired or canceled              |  |        | (1,693,401 | )              |  |          | .20-42.75    |  |  |   | 19.70 | 
|                                 |  |        |            |                |  |          |              |  |  |   |       | 
|Outstanding at December 31, 2000 |  |        | 3,924,313  |                |  |          | $ .15-$42.75 |  |  | $ | 15.13 | 
|                                 |  |        |            |                |  |          |              |  |  |   |       | 
|Exercisable at December 31, 2000 |  |        | 894,243    |                |  |          |              |  |  | $ | 12.23 | 
|                                 |  |        |            |                |  |          |              |  |  |   |       | 

Outstanding options at December 31, 2000 by range of
exercise price were as follows:

|               |         |             |  |             |           |             |  |          |         |  |  |  |            |  |  |   |       | 
|-------------- | ------- | ----------- |  | ----------- | --------- | ----------- |  | -------- | ------- |  |  |  | ---------- |  |  | - | ----- | 
|               |         |             |  |             |           | Weighted    |  | Weighted
|               |         |             |  |             |           | Average     |  | Average 
|               |         | Options     |  | Options     |           | Contractual |  | Exercise
|Exercise Price |         | Outstanding |  | Exercisable |           | Life        |  | Price   
|               |         |             |  |             |           |             |  |         
|               | $  .15- | $ 9.00      |  |             | 1,312,016 |             |  |          | 508,943 |  |  |  | 8.35 years |  |  | $ | 5.93  | 
|              
|              
|              
|              
|               | $ 9.01- | $20.00      |  |             | 1,753,639 |             |  |          | 229,156 |  |  |  | 9.35 years |  |  | $ | 14.50 | 
|              
|              
|              
|              
|               | $20.01- | $30.00      |  |             | 402,731   |             |  |          | 72,700  |  |  |  | 9.02 years |  |  | $ | 25.52 | 
|              
|              
|              
|              
|               | $30.01- | $42.75      |  |             | 455,927   |             |  |          | 83,444  |  |  |  | 9.01 years |  |  | $ | 34.86 | 
|               |         |             |  |             |           |             |  |          |         |  |  |  |            |  |  |   |       | 
|               |         |             |  |             | 3,924,313 |             |  |          | 894,243 |  |  |  | 8.94 years |  |  | $ | 15.13 | 
|               |         |             |  |             |           |             |  |          |         |  |  |  |            |  |  |   |       | 

The weighted average fair value of employee stock options
granted in 1998, 1999 and 2000 was $0.24, $11.86 and $13.75,
respectively, with a weighted average remaining contractual life
of approximately 8.7, 8.9 and 9.4 years, respectively.

The Company has a stock option grant program for its resellers
(Business Partners) entitled the 1998 Business Partner Stock
Option Plan (Business Partners Plan). Under the
Business Partners Plan, the Company may issue options to
purchase Class A Common Stock to Business Partners who meet
certain minimum sales levels. The options are granted at an
exercise price equal to the fair value of the Class A
Common Stock at the date of grant. As the Business Partners are
not employees of the Company, expense is

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

recognized at the time the shares become issuable based upon the
Black-Scholes pricing model. Option activity under the Business
Partners Plan is as follows:

|                                 |  |        |         |                |  |          |            |  |  |   |      | 
|-------------------------------- |  | ------ | ------- | -------------- |  | -------- | ---------- |  |  | - | ---- | 
|                                 |  |        |         |                |  | Weighted
|                                 |  |        |         |                |  | Average 
|                                 |  |        |         |                |  | Exercise
|                                 |  | Shares |         | Exercise Price |  | Price   
|                                 |  |        |         |                |  |         
|Outstanding at December 31, 1997 |  |        | 63,000  |                |  |          | .60        |  |  |   | .60  | 
|                                
|                                
|                                
|                                
|Granted                          |  |        | 24,503  |                |  |          | 9.00       |  |  |   | 9.00 | 
|                                
|                                
|                                
|                                
|Exercised                        |  |        |        |                |  |          |           |  |  |   |     | 
|                                
|                                
|                                
|                                
|Expired or canceled              |  |        |        |                |  |          |           |  |  |   |     | 
|                                 |  |        |         |                |  |          |            |  |  |   |      | 
|Outstanding at December 31, 1998 |  |        | 87,503  |                |  |          | .60-9.00   |  |  |   | 2.95 | 
|                                
|                                
|                                
|                                
|Granted                          |  |        |        |                |  |          |           |  |  |   |     | 
|                                
|                                
|                                
|                                
|Exercised                        |  |        | (48,223 | )              |  |          | .60-9.00   |  |  |   | 1.51 | 
|                                
|                                
|                                
|                                
|Expired or canceled              |  |        | (4,000  | )              |  |          | .60        |  |  |   | .60  | 
|                                 |  |        |         |                |  |          |            |  |  |   |      | 
|Outstanding at December 31, 1999 |  |        | 35,280  |                |  |          | .60-9.00   |  |  |   | 5.19 | 
|                                
|                                
|                                
|                                
|Granted                          |  |        |        |                |  |          |           |  |  |   |     | 
|                                
|                                
|                                
|                                
|Exercised                        |  |        | (5,500  | )              |  |          | .60-9.00   |  |  |   | 5.69 | 
|                                
|                                
|                                
|                                
|Expired or canceled              |  |        |        |                |  |          |           |  |  |   |     | 
|                                 |  |        |         |                |  |          |            |  |  |   |      | 
|Outstanding at December 31, 2000 |  |        | 29,780  |                |  |          | $.60-$9.00 |  |  | $ | 5.10 | 
|                                 |  |        |         |                |  |          |            |  |  |   |      | 
|Exercisable at December 31, 2000 |  |        | 29,780  |                |  |          |            |  |  | $ | 5.10 | 
|                                 |  |        |         |                |  |          |            |  |  |   |      | 

In 1999, the Company adopted the 1999 Non-Employee Director
Stock Option Plan (Director Plan). Options issued
under the Director Plan must have an exercise price equal to the
fair value of the Companys common stock. Each non-employee
director receives an option to purchase 12,500 shares of common
stock upon joining the Companys board of directors and an
option to purchase an additional 12,500 shares after each annual
meeting in which the director remains on the board. Options
granted to Directors vest quarterly during the Directors
service on the Board. The number of shares reserved for the
Director Plan is automatically increased each year by an amount
equal to 12,500 shares multiplied by the number of non-employee
directors. Option activity under the Director Plan is as follows:

|                                 |  |        |         |                |  |          |              |  |  |   |       | 
|-------------------------------- |  | ------ | ------- | -------------- |  | -------- | ------------ |  |  | - | ----- | 
|                                 |  |        |         |                |  | Weighted
|                                 |  |        |         |                |  | Average 
|                                 |  |        |         |                |  | Exercise
|                                 |  | Shares |         | Exercise Price |  | Price   
|                                 |  |        |         |                |  |         
|Outstanding at December 31, 1998 |  |        |        |                |  |          |             |  |  |   |      | 
|                                
|                                
|                                
|                                
|Granted                          |  |        | 87,500  |                |  |          | $9.38-$22.38 |  |  | $ | 11.24 | 
|                                
|                                
|                                
|                                
|Exercised                        |  |        |        |                |  |          |             |  |  |   |      | 
|                                
|                                
|                                
|                                
|Expired or canceled              |  |        |        |                |  |          |             |  |  |   |      | 
|                                 |  |        |         |                |  |          |              |  |  |   |       | 
|Outstanding at December 31, 1999 |  |        | 87,500  |                |  |          | 9.38-22.38   |  |  |   | 11.24 | 
|                                
|                                
|                                
|                                
|Granted                          |  |        | 62,500  |                |  |          | 16.75        |  |  |   | 16.75 | 
|                                
|                                
|                                
|                                
|Exercised                        |  |        | (7,810  | )              |  |          | 9.38         |  |  |   | 9.38  | 
|                                
|                                
|                                
|                                
|Expired or canceled              |  |        | (21,876 | )              |  |          | 9.38         |  |  |   | 9.38  | 
|                                 |  |        |         |                |  |          |              |  |  |   |       | 
|Outstanding at December 31, 2000 |  |        | 120,314 |                |  |          | $9.38-$22.38 |  |  | $ | 14.56 | 
|                                 |  |        |         |                |  |          |              |  |  |   |       | 
|Exercisable at December 31, 2000 |  |        | 25,006  |                |  |          |              |  |  | $ | 13.31 | 
|                                 |  |        |         |                |  |          |              |  |  |   |       | 

At December 31, 2000, options to purchase 4,782 shares of
Series D Preferred Stock that were issued in connection
with a 1997 acquisition are outstanding. The options are
exercisable at $.8515 per share and expire

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INTERACT COMMERCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

ten years from the date of grant. Upon exercise of outstanding
options, the holders will receive up to 3,188 shares of common
stock, as a result of the conversion of Series D preferred
stock into common stock in connection with the Companys
initial public offering.

SFAS No. 123 requires the presentation of pro forma
information regarding net loss and net loss per share as if the
Company has accounted for all its employee stock options grants
under the fair value method. For purposes of this pro forma
calculation, the fair value of options was estimated at the date
of grant using the following weighted-average assumptions:

|                           |  |                         |         |               |  |              |         |   |  |  |         |  
|-------------------------- |  | ----------------------- | ------- | ------------- |  | ------------ | ------- | - |  |  | ------- | -
|                           |  |                        
|                           |  | Year Ended December 31,
|                           |  |                        
|                           |  | 2000                    |         | 1999          |  | 1998        
|                           |  |                         |         |               |  |             
|Valuation method           |  | Black-Scholes           |         | Black-Scholes |  | MinimumValue
|                          
|                          
|                          
|                          
|Expected life of the award |  |                         | 5 years |               |  |              | 5 years |   |  |  | 4 years |  
|                          
|                          
|                          
|                          
|Dividend yield             |  |                         | 0       | %             |  |              | 0       | % |  |  | 0       | %
|                          
|                          
|                          
|                          
|Expected volatility        |  |                         | 89.9    | %             |  |              | 89.9    | % |  |  | N/A     |  
|                          
|                          
|                          
|                          
|Risk-free interest rate    |  |                         | 5       | %             |  |              | 5       | % |  |  | 5       | %

For purposes of pro forma disclosures, the estimated fair value
of the options is amortized to expense over the options
vesting period. The Companys pro forma information follows:

|                                                            |  |                                       |         |      |  |      |        |   |  |   |        |  
|----------------------------------------------------------- |  | ------------------------------------- | ------- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                            |  |                                      
|                                                            |  | Year Ended December 31,              
|                                                            |  |                                      
|                                                            |  | 2000                                  |         | 1999 |  | 1998
|                                                            |  |                                       |         |      |  |     
|                                                            |  |                                      
|                                                            |  | (in thousands, except per share data)
|                                                           
|                                                           
|                                                           
|                                                           
|Net loss as reported                                        |  | $                                     | (56,920 | )    |  | $    | (7,506 | ) |  | $ | (6,639 | )
|                                                           
|                                                           
|                                                           
|                                                           
|Pro forma SFAS No. 123 expense                              |  |                                       | (10,110 | )    |  |      | (1,613 | ) |  |   | (40    | )
|                                                           
|                                                           
|                                                           
|                                                           
|APB 25 expense recognized                                   |  |                                       | 419     |      |  |      | 445    |   |  |   | 65     |  
|                                                            |  |                                       |         |      |  |      |        |   |  |   |        |  
|SFAS No. 123 Pro forma net loss                             |  | $                                     | (66,611 | )    |  | $    | (8,674 | ) |  | $ | (6,614 | )
|                                                            |  |                                       |         |      |  |      |        |   |  |   |        |  
|SFAS No. 123 Pro forma basic and diluted net loss per share |  | $                                     | (3.37   | )    |  | $    | (.69   | ) |  | $ | (1.75  | )
|                                                            |  |                                       |         |      |  |      |        |   |  |   |        |  

14.  Contingencies

The Company is a party to legal proceedings that arise out of
the ordinary course of business from time to time. Management is
of the opinion that any pending matters will have no material
adverse effect on the Companys consolidated financial
statements.

15.  Segment Information

Prior to January 1, 2000, the Company operated as a single
business. Beginning on January 1, 2000, the Company managed
its business as two product operations, SalesLogix and ACT!. The
SalesLogix operation includes the Companys traditional
SalesLogix products for sales, support and configuration, and
related services. The ACT! Operation includes the ACT! software
products acquired on December 31, 1999 and the Interact.com
operation from January 1, 2000 through October 21,
2000 when the Company eliminated the operation. The Company
evaluates performance based on profit or loss before charges for
amortization of

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INTERACT COMMERCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

acquisition related intangible assets and net interest costs.
The Company does not attribute assets to segments. Segment
information is as follows:

|                       |                   |                         |         |         |   |      |        |   |  |   |        |   | 
|---------------------- | ----------------- | ----------------------- | ------- | ------- | - | ---- | ------ | - |  | - | ------ | - | 
|                       |                   |                        
|                       |                   | Year Ended December 31,
|                       |                   |                        
|                       |                   | 2000                    |         | 1999    |   | 1998
|                       |                   |                         |         |         |   |     
|                       |                   |                        
|                       |                   | (in thousands)         
|                      
|                      
|                      
|                      
|SalesLogix revenues    |                   | $                       | 63,611  |         |   | $    | 36,295 |   |  | $ | 15,643 |  
|                      
|                      
|                      
|                      
|ACT! revenues          |                   |                         | 44,039  |         |   |      |       |   |  |   |       |  
|                       |                   |                         |         |         |   |      |        |   |  |   |        |  
|Total segment revenues |                   |                         | 107,650 |         |   |      | 36,295 |   |  |   | 15,643 |  
|                       |                   |                         |         |         |   |      |        |   |  |   |        |  
|SalesLogix loss        |                   |                         | (1,108  | )       |   |      | (4,104 | ) |  |   | (5,333 | )
|                      
|                      
|                      
|                      
|                       | ACT! profit       |                         |         | 7,620   |   |      |        |  |  |   |        |  | 
|                      
|                      
|                      
|                      
|                       | Interact.com loss |                         |         | (20,765 | ) |      |        |  |  |   |        |  | 
|                       |                   |                         |         |         |   |      |        |   |  |   |        |  
|Total ACT! loss        |                   |                         | (13,145 | )       |   |      |       |   |  |   |       |  
|                       |                   |                         |         |         |   |      |        |   |  |   |        |  
|Total segment loss     |                   | $                       | (14,253 | )       |   | $    | (4,104 | ) |  | $ | (5,333 | )
|                       |                   |                         |         |         |   |      |        |   |  |   |        |  

Total segment profit (loss) reconciles to consolidated loss
before taxes as follows:

|                                     |                                                       |                         |         |         |   |      |        |        |   |   |        |        |  
|------------------------------------ | ----------------------------------------------------- | ----------------------- | ------- | ------- | - | ---- | ------ | ------ | - | - | ------ | ------ | -
|                                     |                                                       |                        
|                                     |                                                       | Year Ended December 31,
|                                     |                                                       |                        
|                                     |                                                       | 2000                    |         | 1999    |   | 1998
|                                     |                                                       |                         |         |         |   |     
|                                     |                                                       |                        
|                                     |                                                       | (in thousands)         
|                                    
|                                    
|                                    
|                                    
|Total segment profit (loss)          |                                                       | $                       | (14,253 | )       |   | $    | (4,104 | )      |   | $ | (5,333 | )     
|Amounts not allocated to segments    |                                                       |                         |         |         |   |      |        |        |   |   |        |       
|                                    
|                                    
|                                    
|                                    
|                                     | Amortization of acquisition related intangible assets |                         |         | (20,112 | ) |      |        | (4,379 | ) |   |        | (1,436 | )
|                                    
|                                    
|                                    
|                                    
|                                     | Warrant expense                                       |                         |         | (394    | ) |      |        |       |   |   |        |       |  
|                                    
|                                    
|                                    
|                                    
|                                     | Restructuring charge                                  |                         |         | (10,000 | ) |      |        |       |   |   |        |       |  
|                                    
|                                    
|                                    
|                                    
|                                     | Interest income                                       |                         |         | 2,230   |   |      |        | 1,137  |   |   |        | 385    |  
|                                    
|                                    
|                                    
|                                    
|                                     | Interest expense                                      |                         |         | (4,187  | ) |      |        | (160   | ) |   |        | (255   | )
|                                    
|                                    
|                                    
|                                    
|                                     | Accretion of discount on Symantec royalty obligation  |                         |         | (8,225  | ) |      |        |       |   |   |        |       |  
|                                    
|                                    
|                                    
|                                    
|                                     | Accretion of discount on subordinated debentures      |                         |         | (1,979  | ) |      |        |       |   |   |        |       |  
|                                     |                                                       |                         |         |         |   |      |        |        |   |   |        |       
|Total consolidated loss before taxes |                                                       | $                       | (56,920 | )       |   | $    | (7,506 | )      |   | $ | (6,639 | )     
|                                     |                                                       |                         |         |         |   |      |        |        |   |   |        |       

The Company licenses and markets its products through direct and
indirect channels in North America (United States, Canada, and
Latin America), EMEA (Europe, Middle East and Africa),
Asia-Pacific (Australia, New Zealand, India, China, Korea,
Singapore, Japan and other Asia). Information regarding revenues
in different geographic regions is as follows:

|               |  |                         |         |      |  |      |        |  |  |   |        | 
|-------------- |  | ----------------------- | ------- | ---- |  | ---- | ------ |  |  | - | ------ | 
|               |  |                        
|               |  | Year Ended December 31,
|               |  |                        
|               |  | 2000                    |         | 1999 |  | 1998
|               |  |                         |         |      |  |     
|               |  |                        
|               |  | (in thousands)         
|              
|              
|              
|              
|North America  |  | $                       | 88,213  |      |  | $    | 29,593 |  |  | $ | 14,205 | 
|              
|              
|              
|              
|EMEA           |  |                         | 14,396  |      |  |      | 5,490  |  |  |   | 1,438  | 
|              
|              
|              
|              
|Asia-Pacific   |  |                         | 5,041   |      |  |      | 1,212  |  |  |   |       | 
|               |  |                         |         |      |  |      |        |  |  |   |        | 
|Total revenues |  | $                       | 107,650 |      |  | $    | 36,295 |  |  | $ | 15,643 | 
|               |  |                         |         |      |  |      |        |  |  |   |        | 

54



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INTERACT COMMERCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

16.  Income Taxes

Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Companys deferred income taxes are as follows:

|                         |                                  |                |        |         |        |   |       |        |       | 
|------------------------ | -------------------------------- | -------------- | ------ | ------- | ------ | - | ----- | ------ | ----- | 
|                         |                                  |               
|                         |                                  | December 31,  
|                         |                                  |               
|                         |                                  | 2000           |        | 1999   
|                         |                                  |                |        |        
|                         |                                  |               
|                         |                                  | (in thousands)
|                        
|                        
|                        
|                        
|Deferred tax assets:     |                                  |                |        |         |        |   |       |       
|                         | Net operating loss carryforwards |                |        |         |        |   |       |        |      
|                        
|                        
|                        
|                        
|                         |                                  | Company        |        | $       | 15,578 |   |       | $      | 5,370 | 
|                        
|                        
|                        
|                        
|                         |                                  | Enact          |        |         | 1,088  |   |       |        |      | 
|                        
|                        
|                        
|                        
|                         |                                  | Opis           |        |         | 600    |   |       |        | 600   | 
|                        
|                        
|                        
|                        
|                         | General business credits         |                |        | 930     |        |   |       | 573    |      
|                        
|                        
|                        
|                        
|                         | Restructuring accrual            |                |        | 1,300   |        |   |       |       |      
|                        
|                        
|                        
|                        
|                         | Accounts receivable allowances   |                |        | 1,626   |        |   |       |       |      
|                        
|                        
|                        
|                        
|                         | ACT! royalty obligation          |                |        | 7,319   |        |   |       |       |      
|                        
|                        
|                        
|                        
|                         | Other                            |                |        | 1,559   |        |   |       | 957    |      
|                         |                                  |                |        |         |        |   |       |       
|                         |                                  |                | 30,000 |         |        |   | 7,500 |       
|                        
|                        
|                        
|                        
|                         | Less valuation reserve           |                |        | (30,000 | )      |   |       | (7,500 | )    
|                         |                                  |                |        |         |        |   |       |       
|Net deferred tax assets  |                                  |                |       |         |        |   |      |       
|                        
|                        
|                        
|                        
|Deferred tax liabilities |                                  |                |       |         |        |   |      |       
|                         |                                  |                |        |         |        |   |       |       
|Net deferred taxes       |                                  | $              |       |         |        | $ |      |       
|                         |                                  |                |        |         |        |   |       |       

The valuation allowance increased by $22,500,000 and $1,300,000
at December 31, 2000 and 1999, respectively, due to the
respective periods losses. The Company has fully reserved
for its deferred tax assets due to the uncertainty of recovery
from future operations. As a result the Companys effective
tax rate differs from the Federal statutory rate by such rate.
The Company also expects to receive tax deductions for certain
equity transactions for which the Company would record a credit
to paid in capital upon realization of the benefit.

At December 31, 2000 the Company has net operating loss
carryforwards for federal income tax purposes of approximately
$43,000,000 that begin to expire in 2011, to the extent not
previously utilized. Approximately $4,200,000 of the net
operating loss carryforward is attributable to acquired
companies. These losses may be limited for tax purposes under
Internal Revenue Code section 382 (Section 382) that limit
the annual utilization of net operating losses. In addition, all
of the Companys net operating loss carryforwards could be
subject to limitation under Section 382 based upon changes
in control as defined therein that have occurred or may occur.

17.  Benefit Plans

The Company has a 401(k) Retirement Savings Plan (Plan) covering
substantially all employees. Under terms of the Plan, employees
may make voluntary contributions, subject to Internal Revenue
Service limitations. The Company may make discretionary annual
contributions to the Plan. However, no contributions were made
during 1998, 1999 or 2000. For the calendar year beginning
January 1, 2001, the Company has elected to match 50%
employee contributions to the Plan up to 6% of the
employees salary.

In 1999, the Company adopted an employee stock purchase plan.
Under the employee stock purchase plan, eligible employees may
purchase shares of the Companys common stock through
payroll deductions,

55



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##### Table of Contents



INTERACT COMMERCE CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)

subject to certain limitations. The price at which the stock may
be purchased is equal to 85% of the market price of the
Companys stock on the lower of the first or last day of
the applicable offering period. During 1999, 94,453 shares of
common stock were issued under the employee stock purchase plan
at a price of $7.65 per share. During 2000, 252,429 shares of
common stock were issued under the employee stock purchase plan
at prices ranging from $7.12 to $10.04.

18.  Quarterly Financial Data (Unaudited)

|                                                      |  |                                       |         |      |  |    |         |    |  |    |         |    |  |    |         |    |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|----------------------------------------------------- |  | ------------------------------------- | ------- | ---- |  | -- | ------- | -- |  | -- | ------- | -- |  | -- | ------- | -- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                                      |  |                                       |         |     
|                                                      |  | 2000                                  |         | 1999
|                                                      |  |                                       |         |     
|                                                      |  | Q1                                    |         | Q2   |  | Q3 |         | Q4 |  | Q1 |         | Q2 |  | Q3 |         | Q4
|                                                      |  |                                       |         |      |  |    |         |    |  |    |         |    |  |    |         |   
|                                                      |  |                                      
|                                                      |  | (in thousands, except per share data)
|                                                     
|                                                     
|                                                     
|                                                     
|Net Revenues                                          |  | $                                     | 21,768  |      |  | $  | 25,168  |    |  | $  | 29,502  |    |  | $  | 31,212  |    |  | $ | 6,302  |   |  | $ | 8,196  |   |  | $ | 10,123 |   |  | $ | 11,674 |  
|                                                     
|                                                     
|                                                     
|                                                     
|Gross Profit                                          |  |                                       | 16,063  |      |  |    | 18,483  |    |  |    | 22,090  |    |  |    | 24,768  |    |  |   | 4,619  |   |  |   | 5,919  |   |  |   | 7,458  |   |  |   | 8,672  |  
|                                                     
|                                                     
|                                                     
|                                                     
|Operating Expenses                                    |  |                                       | 24,993  |      |  |    | 28,983  |    |  |    | 32,102  |    |  |    | 40,085  |    |  |   | 5,747  |   |  |   | 8,735  |   |  |   | 9,256  |   |  |   | 11,413 |  
|                                                     
|                                                     
|                                                     
|                                                     
|Net Loss                                              |  |                                       | (12,123 | )    |  |    | (13,717 | )  |  |    | (12,789 | )  |  |    | (18,291 | )  |  |   | (1,081 | ) |  |   | (2,659 | ) |  |   | (1,444 | ) |  |   | (2,322 | )
|                                                     
|                                                     
|                                                     
|                                                     
|Net Loss per common share:                            |  |                                       |         |      |  |    |         |    |  |    |         |    |  |    |         |    |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|                                                     
|                                                     
|                                                     
|                                                     
|Basic and Diluted                                     |  | $                                     | (0.62   | )    |  | $  | (0.70   | )  |  | $  | (0.64   | )  |  | $  | (0.91   | )  |  | $ | (0.31  | ) |  | $ | (0.28  | ) |  | $ | (0.08  | ) |  | $ | (0.12  | )
|                                                     
|                                                     
|                                                     
|                                                     
|Shares used in computing net income per common share: |  |                                       |         |      |  |    |         |    |  |    |         |    |  |    |         |    |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|                                                     
|                                                     
|                                                     
|                                                     
|Basic and Diluted                                     |  |                                       | 19,444  |      |  |    | 19,662  |    |  |    | 19,960  |    |  |    | 20,076  |    |  |   | 3,443  |   |  |   | 9,451  |   |  |   | 18,559 |   |  |   | 18,618 |  

19.  Subsequent Events

On March 22, 2001, the Company entered into a new revolving
credit facility (Line of Credit) that is secured by
substantially all of the Companys assets. The Company may
borrow up to $20 million under the Line of Credit, subject to
available collateral. The Line of Credit bears interest at the
lenders prime rate plus 0.75% and is subject to renewal on
March 22, 2004. The Line of Credit contains various
financial and operational covenants.

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##### Table of Contents



SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS

Interact Commerce Corporation

December 31, 2000


(In Thousands)


|                              |                                 |              |  |           |  |             |  |             |  |            |  |       |  |  |  |       |  |  |  |       | 
|----------------------------- | ------------------------------- | ------------ |  | --------- |  | ----------- |  | ----------- |  | ---------- |  | ----- |  |  |  | ----- |  |  |  | ----- | 
|                              |                                 |              |  |           |  | COLUMN      |  |            
|COLUMN A                      |                                 | COLUMN B     |  | COLUMN C  |  | D           |  | COLUMN E   
|                              |                                 |              |  |           |  |             |  |            
|                              |                                 |              |  |           |  |             |  |            
|                              |                                 |              |  | ADDITIONS |  |             |  |            
|                              |                                 |              |  |           |  |             |  |            
|                              |                                 |              |  | Charged   |  | Charged to  |  |             |  |           
|                              |                                 | Balance of   |  | to Costs  |  | Other       |  |             |  | Balance at
|                              |                                 | Beginning of |  | and       |  | Accounts   |  | Deduction  |  | End of    
|Description                   |                                 | Period       |  | Expenses  |  | Describe(1) |  | Describe(2) |  | Period    
|                              |                                 |              |  |           |  |             |  |             |  |           
|Year ended December 31, 1998: |                                 |              |  |           |  |             |  |             |  |            |  |       |  |  |  |       |  |  |  |      
|                              | Allowance for Doubtful Accounts |              |  | 181       |  |             |  | 666         |  |            |  |      |  |  |  | 392   |  |  |  | 455   | 
|                             
|                             
|                             
|                             
|Year ended December 31, 1999: |                                 |              |  |           |  |             |  |             |  |            |  |       |  |  |  |       |  |  |  |      
|                              | Allowance for Doubtful Accounts |              |  | 455       |  |             |  | 2,206       |  |            |  |      |  |  |  | 1,597 |  |  |  | 1,064 | 
|                             
|                             
|                             
|                             
|Year ended December 31, 2000: |                                 |              |  |           |  |             |  |             |  |            |  |       |  |  |  |       |  |  |  |      
|                              | Allowance for Doubtful Accounts |              |  | 1,064     |  |             |  | 4,782       |  |            |  | 2,711 |  |  |  | 4,412 |  |  |  | 4,145 | 




|    |                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------
|(1) | Inventory channel deferral for ACT! distribution, which is
	recorded as a reduction to license revenues.
|   
|(2) | Uncollectible accounts written off, net of recoveries.                                                  

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##### Table of Contents



SIGNATURES

Pursuant to the requirement of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Phoenix,
State of Arizona, on March 27, 2001.



| |                              
| | -----------------------------
| | INTERACT COMMERCE CORPORATION
|
| | By: /s/ PATRICK M. SULLIVAN  
| |                              
| | Patrick M. Sullivan          
| | Chief Executive Officer      

Each person whose individual signature appears below hereby
authorizes and appoints Patrick M. Sullivan and John Harbottle,
and each of them, with full power of substitution and
resubstitution and full power to act without the other, as his
true and lawful attorney-in-fact to act in his name, place and
stead and to execute in the name and on behalf of each person,
individually and in each capacity stated below, and to file, any
and all amendments to this Annual Report on Form 10-K, and
to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in fact, and each of
them, full power and authority to do and perform each and every
act and thing as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all
that said attorneys-in- fact or any of them or their or his
substitute or substitutes may lawfully do or cause to be done by
virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons in
the capacities indicated below on March 27, 2001.

|                                           |  |                                                                                                                         
|------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------
|Signature                                  |  | Title                                                                                                                   
|                                           |  |                                                                                                                         
|/s/ PATRICK M. SULLIVANPatrick M. Sullivan |  | Chief Executive Officer and Chairman of the Board (Principal
	Executive Officer)                                        
|                                          
|/s/ KEVIN R. BETHKEKevin R. Bethke         |  | President and Chief Operating Officer                                                                                   
|                                          
|/s/ JOHN HARBOTTLEJohn Harbottle           |  | Executive Vice President, Chief Financial Officer, Secretary and
	Treasurer (Principal Financial and Accounting Officer)
|                                          
|/s/ DEEPAK KAMRADeepak Kamra               |  | Director                                                                                                                
|                                          
|/s/ ANTHONY P. MORRISAnthony P. Morris     |  | Director                                                                                                                
|                                          
|/s/ DAVID C. SCHWABDavid C. Schwab         |  | Director                                                                                                                
|                                          
|/s/ STEVE HANSENSteve Hansen               |  | Director                                                                                                                
|                                          
|/s/ JOHN B. CARRINGTONJohn B. Carrington   |  | Director                                                                                                                

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##### Table of Contents



INDEX TO EXHIBITS

EXHIBITS

|       |          |             |  |                                                                                                                                                                                                                                                       
|------ | -------- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |          | Description
|       |          |            
|       | 2.1(2)   |             |  | Software License Agreement between the Company and Symantec
	Corporation dated December 6, 1999.                                                                                                                                                      
|       | 2.2(2)   |             |  | Amendment to Software License Agreement between the Company and
	Symantec Corporation dated December 31, 1999.                                                                                                                                        
|       | 2.3(2)   |             |  | Exhibit A to Software License Agreement 
	Licensed Products.                                                                                                                                                                                         
|       | 2.4(2)   |             |  | Exhibit C to Software License Agreement  Other
	Transferred Assets.                                                                                                                                                                                  
|       | 2.5(2)   |             |  | Exhibit E to Software License Agreement 
	Transferred Liabilities.                                                                                                                                                                                   
|       | 2.6(2)   |             |  | Exhibit F to Software License Agreement 
	Transition Agreement.                                                                                                                                                                                      
|       | 2.7(2)   |             |  | Exhibit M to Software License Agreement 
	Registration Rights Agreement.                                                                                                                                                                             
|       | 2.8(2)   |             |  | Exhibit N to Software License Agreement 
	Stockholder Agreement.                                                                                                                                                                                     
|       | 3.1(1)   |             |  | Fifth Restated Certificate of Incorporation of the registrant.                                                                                                                                                                                        
|       | 3.2(4)   |             |  | Amendment No. 1 to Fifth Restated Certificate of
	Incorporation, effective April 24, 2000.                                                                                                                                                            
|       | 3.3(1)   |             |  | Second Restated Bylaws of the registrant.                                                                                                                                                                                                             
|       | 4.1(1)   |             |  | Amended and Restated Investors Rights Agreement, dated as
	of June 4, 1998, by and among the registrant and the
	parties named therein.                                                                                                              
|       | 4.2(1)   |             |  | Opis Investors Rights Agreement, dated as of
	December 30, 1997, among the registrant and the parties
	named therein. Warrant to Purchase Stock, dated December 2,
	1997, issued to Silicon Valley Bank that includes piggyback
	registration rights.
|       | 4.3(1)   |             |  | Warrant to Purchase Stock, dated August 4, 2000, issued to
	Sprint                                                                                                                                                                                    
|       | 4.4      |             |  | Spectrum L.P. that includes piggyback registration rights                                                                                                                                                                                             
|       | 10.1(2)  |             |  | Office Lease Agreement, dated as of June 17, 1998, between
	Gainey Ranch Corporate Center and the registrant.                                                                                                                                         
|       | 10.2(1)  |             |  | Second Amended and Restated Loan and Security Agreement, dated
	as of December 2, 1997, between Silicon Valley Bank and the
	registrant, and modifications thereto.                                                                                   
|       | 10.3(1)  |             |  | Master Equipment Lease dated June 7, 1996 between the
	registrant and Comdisco, Inc., including subsequent schedules of
	equipment.                                                                                                                   
|       | 10.4(1)  |             |  | 1996 Equity Incentive Plan, as amended.                                                                                                                                                                                                               
|       | 10.5(1)  |             |  | 1998 Business Partner Stock Option Plan, as amended.                                                                                                                                                                                                  
|       | 10.6(1)  |             |  | 1999 Outside Director Stock Option Plan                                                                                                                                                                                                               
|       | 10.7(1)  |             |  | 1999 Employee Stock Purchase Plan.                                                                                                                                                                                                                    
|       | 10.8(1)  |             |  | Employment Agreement dated January 17, 1996 with
	Patrick  M. Sullivan.                                                                                                                                                                               
|       | 10.9(3)  |             |  | Senior Subordinated Note and Warrant Purchase Agreement dated
	December 31, 1999 among the registrant, BA
	Technology I, LLC and GE Capital Equity Investments, Inc.                                                                                  
|       | 10.10(3) |             |  | Registration Rights Agreement dated December 31, 1999 among
	the registrant, BA Technology I, LLC and GE Capital Equity
	Investments, Inc.                                                                                                            
|       | 10.11(3) |             |  | Common Stock Purchase Warrant dated December 31, 1999
	issued to BA Technology I, LLC                                                                                                                                                                 
|       | 10.12(3) |             |  | Common Stock Purchase Warrant dated December 31, 1999
	issued to GE Capital Equity Investments, Inc.                                                                                                                                                  
|       | 10.13(3) |             |  | Senior Subordinated Note Due 12/31/04 issued to BA
	Technology I, LLC                                                                                                                                                                                 
|       | 10.14(3) |             |  | Senior Subordinated Note Due 12/31/04 issued to GE Capital
	Equity Investments, Inc.                                                                                                                                                                  
|       | 10.17(4) |             |  | Office Lease dated February 3, 2000 between the registrant
	and Century San Jose, LLC.                                                                                                                                                                

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|       |          |             |  |                                                                                                                                                                                                          
|------ | -------- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |          | Description
|       |          |            
|       | 10.18(4) |             |  | Credit Agreement dated April 27, 2000 between registrant
	and Imperial Bank.                                                                                                                             
|       | 10.19(4) |             |  | Security Agreement dated April 27, 2000 between registrant
	and Imperial Bank.                                                                                                                           
|       | 10.20(4) |             |  | Revolving Promissory Note dated April 27, 2000 between
	registrant and Imperial Bank.                                                                                                                    
|       | 10.21(4) |             |  | Master Lease Agreement dated February 28, 2000, as amended
	and modified, between registrant and Imperial Bank.                                                                                          
|       | 10.22    |             |  | Loan and Security Agreement dated March 16, 2001 between
	registrant and Foothill Capital Corporation.                                                                                                   
|       | 10.23    |             |  | Intellectual Property Security Agreement dated March 16,
	2001 between registrant and Foothill Capital Corporation.                                                                                      
|       | 10.24    |             |  | Collateral Assignment of Rights under Symantec License Agreement
	dated March 16, 2001 between registrant and Foothill
	Capital Corporation, consented to by Symantec Corporation.                       
|       | 10.25    |             |  | Stock Pledge Agreement dated March 16, 2001 between
	registrant and Foothill Capital Corporation.                                                                                                        
|       | 10.26    |             |  | Sideletter Agreement dated March 16, 2001 amending Senior
	Subordinated Note Purchase Agreement dated December 31,
	1999 among BA Technology I, LLC, GE Capital Equity
	Investments, Inc. and registrant.
|       | 21.1     |             |  | Subsidiaries of the registrant.                                                                                                                                                                          
|       | 23.1     |             |  | Consent of Ernst & Young LLP, Independent Auditors.                                                                                                                                                      




|    |                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to the Registration Statement on
	Form S-1 (No.  333-75353) filed by the registrant on
	March 31, 1999, as amended.
|   
|(2) | Incorporated by reference to the Current Report on Form 8-K
	for transaction dated December 31, 1999.                                        
|   
|(3) | Incorporated by reference to Annual Report on Form 10-K for
	the year ended December 31, 1999.                                               
|   
|(4) | Incorporated by reference to Quarterly Report on Form 10-Q
	for the quarter ended March 31, 2000.                                            

60