##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Form 10-K



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|           |  |                                                                                                 
|---------- |  | ------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                 
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the year ended March 30,
    2002                                                           
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to           .                                     

Commission file
number 000-26437

Accrue Software, Inc.

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                           |  | 94-3238684                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)

48634 Milmont Drive

Fremont, CA 94538-7353


(Address of principal executive offices,
including zip code)


(510) 580-4500

(Registrants telephone number, including
area code)


[Former Name or Former Address, if
applicable]

(Former name, former address and former fiscal
year, if changed since last report)


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 þ     No o

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

The approximate aggregate market value of the
registrants common stock held by nonaffiliates of the
registrant (based on the closing sales price of such stock as
reported by the Nasdaq Stock Market) on May 31, 2002 was
$6,150,052. This amount excludes shares of common stock held by
directors, officers and each person who holds 5% or more of the
registrants common stock. The number of shares of common
stock, $0.001 par value per share, outstanding at May 31,
2002 was 30,074,620.









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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 Equity and Related Stockholder Matters                
|                        | Item 6. Selected Financial Data                                                              
|                        | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                        | Item 7A. Quantitative and Qualitative Disclosures About Market Risks                         
|                        | 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                                                              
|Stock Performance Graph
|                        | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                        | Item 13. Certain Relationships and Related Transactions                                      
|PART IV                
|                        | Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K                     
|SIGNATURES             
|Exhibit Index          
|Exhibit 10.34          
|Exhibit 10.35          
|Exhibit 10.36          
|Exhibit 10.37          
|Exhibit 10.38          
|Exhibit 23.1           



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##### Table of Contents



ACCRUE SOFTWARE, INC.

ANNUAL REPORT ON FORM 10-K

For the Year Ended March 30,
2002


TABLE OF CONTENTS

|           |  |                                                                                           |    |      |    | 
|---------- |  | ----------------------------------------------------------------------------------------- | -- | ---- | -- | 
|           |  |                                                                                           |    | Page
|           |  |                                                                                           |    |     
|PART I    
|Item 1.    |  | Business                                                                                  |    |      | 2  | 
|Item 2.    |  | Properties                                                                                |    |      | 11 | 
|Item 3.    |  | Legal Proceedings                                                                         |    |      | 11 | 
|Item 4.    |  | Submission of Matters to a Vote of Security
    Holders                                   |    |      | 12 | 
|PART II   
|Item 5.    |  | Market for Registrants Common Equity and
    Related Stockholder Matters                 |    |      | 13 | 
|Item 6.    |  | Selected Financial Data                                                                   |    |      | 16 | 
|Item 7.    |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |    |      | 16 | 
|Item 7A.   |  | Quantitative and Qualitative Disclosure About
    Market Risks                            |    |      | 43 | 
|Item 8.    |  | Consolidated Financial Statements and
    Supplementary Data                              |    |      | 45 | 
|Item 9.    |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure  |    |      | 46 | 
|PART III  
|Item 10.   |  | Directors and Executive Officers of the Registrant                                        |    |      | 46 | 
|Item 11.   |  | Executive Compensation                                                                    |    |      | 49 | 
|Item 12.   |  | Security Ownership of Certain Beneficial Owners
    and Management                        |    |      | 59 | 
|Item 13.   |  | Certain Relationships and Related Transactions                                            |    |      | 61 | 
|PART IV   
|Item 14.   |  | Exhibits, Financial Statement Schedule, and
    Reports on Form 8-K                       |    |      | 64 | 
|SIGNATURES |  |                                                                                           | 94 |     

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This Annual Report on Form 10-K contains
forward-looking statements reflecting managements current
forecast of certain aspects of our future. It is based on
current information, which we have assessed but which by its
nature is dynamic and subject to rapid and even abrupt changes.
Forward looking statements include statements regarding future
operating results, liquidity, capital expenditures, product
development and enhancements, numbers of personnel, strategic
relationships with third parties, and strategy. The
forward-looking statements are generally accompanied by words
such as plan, estimate,
expect, believe, should,
would, could, anticipate or
other words that convey uncertainty of future events or
outcomes. Our actual results could differ materially from those
stated or implied by our forward-looking statements due to risks
and uncertainties associated with our business. These risks are
described throughout this Annual Report on Form 10-K, which
you should read carefully. We would particularly refer you to
the Risk Factors section under Item 7 of this
Report for an extended discussion of the risks confronting our
business. The forward-looking statements in this Annual Report
on Form 10-K should be considered in the context of these
risk factors




PART I






|        |         
|------- | --------
|Item 1. | Business

Overview

Accrue Software is a provider of enterprise-level
analytics software solutions that help companies gain
comprehensive insight into online customer behavior and make
timely decisions to deliver corporate-wide value from the
Internet channel. Our products collect, process, store, analyze,
and report on Internet data. Our products are designed to enable
business decision makers to increase the effectiveness of
Internet marketing and merchandising initiatives, better manage
customer interactions across multiple channels and reduce costs
by increasing customer self service via the Web.

The past decade was characterized by intense
focus on the Internet, resulting in significant investments in
Internet initiatives and accelerated advancement of related
technologies. Under pressure to achieve returns on those
Internet related investments, many companies are employing more
traditional business disciplines to drive Internet business
strategies and operations. The importance of detailed
measurement and tailored analysis of Internet based customer
interactions has increased significantly, and companies are
demanding more sophisticated analytics solutions as they push
the limits of existing analytical solutions capabilities.
With the May 2001 introduction of Accrue G2, our
next-generation Internet analytics software solution, we believe
that we provide the only integrated solution that addresses the
changes in Internet technologies with the level of detail,
flexibility, and scalability required to meet the evolving needs
of leading companies.

Our products and services are available through
our direct sales and professional services organizations located
in the United States, Canada and Germany and through select
distributors in the Asia Pacific, European and South American
markets.

We have over 100 customers of our Internet
analytics products, which include companies in a wide variety of
industries, including financial services, publishing/
media/entertainment, retail and multi-channel commerce, high
technology and telecommunications.

Our principal executive offices are located at
48634 Milmont Drive, Fremont, California 94538, and our
telephone number at that location is (510) 580-4500.

Industry Background

Since the introduction of the marketing
concept in the 1950s, it has been widely understood that a
comprehensive understanding of customer behavior and preferences
is critical to a companys ability to attract and retain
customers. During the dot-com era of Internet based
commerce, however, investments in traditional analytical
marketing disciplines initially were abandoned in favor of brand
awareness campaigns and promotions to drive traffic to Web
sites. Although many companies employed Web measurement tools,
initial analysis focused on traffic oriented metrics such as
site traffic volumes, unique visitors and session

2



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length. These metrics provided useful load
balancing information to information technology organizations,
but provided little insight into customer behavior.


Today, recognizing the need to increase rapidly
their knowledge of Internet based customer behavior and
preferences, companies are seeking to provide more complex
analytics capabilities to a larger number of constituents across
their organizations. Additionally, as the Internet plays an
increasingly central role in multi-channel customer
relationships, data from other sources must be analyzed and
integrated to better assess the role of the Internet within the
context of customers diverse interactions with the
company. First-generation Web analysis solutions are often
unable to meet these demands because they were originally
designed to meet the simpler requirements of the early phases of
the Internet such as static reporting on simple traffic and
visitor data. According to a September 2001 study published by
Forrester Research, 63% of companies are dissatisfied with the
effectiveness of their measurement tools because they fail to
meet their needs with respect to the following:



| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | Gathering the required data                                                                    
|
| |  | Integrating data from multiple sources                                                         
|
| |  | Customizing reports                                                                            
|
| |  | Gaining detailed understanding of customer
    behavior                                        
|
| |  | Maintaining performance and scalability of their
    measurement tool as requirements increase.

Meeting the growing requirements for analyzing
online customer behavior and preferences requires a highly
sophisticated Internet analytics software solution that can
address next generation Internet technology requirements and the
challenges of multi-channel customer relationships. A
comprehensive Internet analytics software solution must enable a
company to collect complete, accurate data from multiple
sources, optimize that data to meet the information requirements
of a broad set of audiences, and enable numerous users to
rapidly perform custom and ad hoc analyses that provide
significant detail without sacrificing performance.

The Accrue Solution

Our Internet analytics software solution provides
access to detailed information about online customer behavior in
a format and with a level of accuracy designed to facilitate
strategic business decisions and support increased effectiveness
in day-to-day operational execution.

Our solution is designed to accommodate
enterprise standards, corporate rules, and dynamically changing
businesses. By integrating into a companys existing
information systems and merging existing corporate customer and
transaction data with Web site visitor data, our solution
provides companies an extensive view of their Internet
customers behavior and preference in the context of
multi-channel customer relationships. Our solution provides the
following capabilities requested by leading companies to meet
challenging measurement and analysis requirements including:

Comprehensive and Detailed Collection of
Customer Experiences.Data about
customers experiences on the Web is essential to Internet
based customer relationship management. Our solution provides a
comprehensive set of data collection and integration
capabilities, so that our clients have access to complete,
accurate data about their customers experiences.

Scalable and Flexible
Processing.To enable effective
analysis of online customer behavior, companies must be able to
effectively process and optimize the data collected from their
Internet infrastructure and other sources. Our products are
designed to scale effectively to meet the needs of complex
Internet initiatives, including:



| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | Data volumes of more than a billion events per
    day;                           
|
| |  | Infrastructure with hundreds of Web servers
    supporting thousands of Web sites;
|
| |  | Generation of thousands of unique reports per day;                                

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| |   |                                                                  
| | - | -----------------------------------------------------------------
| |  | Storage of hundreds of gigabytes of historical
    activity data;
|
| |  | Complex, globally distributed content;                           
|
| |  | Hundreds of concurrent users across the
    organization.        

Functionally Relevant Information
Access.We provide special purpose
data views and analysis capabilities designed to support the
unique needs of functional users and decision makers throughout
our clients organizations including executive management,
marketing, merchandising, customer service, and IT operations.
Incorporating a methodology that enables our clients to develop
cross-channel scenarios that help them achieve their goals
related to their customers, team members across their
organizations can then monitor and analyze the effectiveness of
the initiatives for which they are responsible. Our tiered
approach to measurement and analysis comprises dashboards,
specialized reports, and advanced analysis capabilities that
enable the diverse group of functional users to identify and
focus the areas that require decisions and changes to improve
business performance.

Comprehensive and Interactive
Analysis.Our software solutions
provide online analytical processing, data mining and flexible
report generation. An interactive Web-based interface allows
users to select pre-defined reports with date ranges and
filters, or generate new analyses on an ad hoc basis with a
customized interface. Our software performs complex queries with
sub-second response time, and enables users to share information
by scheduling updates at daily, weekly or monthly intervals and
automating distribution to team members across the corporation
in a variety of formats.

We also provide professional services to assist
customers at every stage of software deployment, from
identification of specific business needs through enterprise
integration and customization of Internet analysis and
reporting, to final implementation. Accrues Internet
analytics products and services are designed to help our
customers obtain the following results:



| |   |                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Increasing number of customers by providing
    insight into the effectiveness of campaigns and promotions and
    identifying the external partners and Web sites that provide the
    most qualified prospects.
|
| |  | Increasing customer loyalty by identifying which
    content and products are most important and appropriate to their
    customers needs and desires.                                                          
|
| |  | Increasing sales by showing how different
    customer segments interact with their Web sites and the paths
    taken by customers.                                                                              
|
| |  | Decreasing costs of service by providing detailed
    information on the effectiveness of a companys efforts to
    facilitate customer self-service via the Internet.                                          

Accrue Strategy

Our objective is to be a leading provider of
enterprise class Internet analytics software. To achieve this
objective, our strategy includes the following key elements:

Maintain and expand our products and
technologies.We intend to advance our
technology leadership in Internet analytics by extending our
softwares capabilities to additional market segments and
expanding the range of problems our products solve.
Specifically, we will invest in the development of additional
applications, such as our Path Analysis application, that
provide advanced analytics capabilities to our clients. We
believe that maintaining and enhancing our products is critical
to retaining our customer base and increasing our market share.
We intend to maintain an open system architecture so that our
products will continue to integrate with major platforms and
technologies as they evolve.

Develop industry-specific
solutions.By partnering with Global
2000 clients in key industries, including retail, financial
services, and publishing, we believe we can rapidly deliver
valuable industry specific versions of our software solution to
the marketplace. Our Accrue G2 retail solution is currently
being implemented at a major retail client site, and we
anticipate full rollout of that industry solution during the
September-ending quarter of calendar 2002, with other industry
solutions to follow.

4



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Leverage and Expand Blue Chip Customer
Base.We currently provide our
software and services to over 100 companies across numerous
industries, including publishing/ media/entertainment,
multi-channel commerce and financial services. Our products are
designed to scale so that our clients can frequently purchase
additional software and services from us as they experience
increases in Web site traffic, higher levels of complexity in
the scope of their Internet initiatives, and more sophisticated
needs for internal merchandising and marketing analysis. Our
customer base also provides an accessible market for our newly
developed or acquired products and services.

Pursue Strategic
Acquisitions.Accrue has a track
record of acquiring and integrating technologies that improve
our software products and enable us to develop competitive
differentiation. Although we have no present commitments or
agreements regarding any further acquisitions, we continue to
seek such acquisition opportunities and believe that there are
many acquisition candidates that could enhance our position in
the market.

Expand Sales and Distribution
Channels.We intend to address a
broader market for our products by increasing the use of systems
integrators and distributors to complement our direct selling
efforts. These partners will be chosen carefully, with regard to
vertical and geographic focus, as we intend to invest heavily in
the education of each partner. In addition, we will pursue
growth in international markets, including targeted European and
Asian countries, by employing a channel sales strategy and
increasing our delivery partnerships. When appropriate, we will
implement localized versions of our applications.

Products and Services



| |          
| | ---------
| | Accrue G2

Our flagship product, Accrue G2, is our
next-generation Internet analytics software solution that
provides our customers with a comprehensive view of online
customer behavior and Internet performance. Accrue G2 helps
sales, marketing and information technology (IT)
executives to understand, influence, and respond to online
customer behavior, and make precise business decisions about
their Internet strategy and operations. Built for the most
demanding Internet environments, Accrue G2 integrates proven
technologies for data collection, processing, analysis, and
reporting. By integrating data from multiple sources, Accrue
G2s analytical tools are designed to enable companies to
develop insights into cross-channel customer behavior and
optimize their Internet operations. Accrue G2 is priced based on
the total number of CPUs used for processing.

Accrue G2 consists of data collector, analyzer
and warehouse features combined with powerful reporting and
access options within an integrated system architecture:

Accrue G2 Collector.Our collector provides a suite of data collection capabilities
including server, network and client-based network collection.
Our unique network collector software provides access to
comprehensive, accurate data for precise decision making and
insights not available using other data collection techniques.
By sitting passively in the customers network
configuration of Web servers, routers, switches and load
balancing products, Accrue G2 counts and records all click
streams comprising visitor activity to the customers Web
site. Accrue G2 can also acquire data from a wide range of Web
and application server log files, Web server plug-ins, and links
to third party data sources, in addition to using embedded java
scripts. Our Universal collection technology enables customized
data collection from most data sources.

Accrue G2 Analyzer.Our scalable processing engine transforms the raw data gathered
by the Accrue G2 Collector, according to the customers
specifications, filters out unneeded information, and adds a
level of intelligence to the data to enhance loading and
storage. The analyzer organizes and aggregates data to make
available the appropriate level of detail to reflect a
companys business rules and information needs.

Data Warehouse.Embedded within Accrue G2 is the IBM DB2 Universal Data
Base. Accrue G2 also supports Oracle data base users. Data that
is processed by our analyzer is optimized and loaded into our
high speed data warehouse. Our data warehouse enables automated
and efficient data management, including storage, consolidation
and archiving, batch reporting and interactive data mining.

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Accrue G2 Reporting.Using a proprietary set of Hybrid OLAP technologies based on
business intelligence solutions developed by Pilot Software,
Accrue G2 offers interactive analysis. Features include
drill-down and drill-through analysis, detailed visitor path
analysis, and broad access to allow numerous individuals across
the organization to perform ad hoc analyses with sub-second
response time.



| |               
| | --------------
| | Accrue Insight

Accrue Insight, our first generation, enterprise
class Internet analytics software solution is designed to
maximize the effectiveness of Internet based content,
e-commerce, advertising and affiliate programs. A customizable
software solution, Accrue Insight is an Internet analytics
software solution targeted to mid-sized companies with growing
Internet initiatives seeking to better manage their Internet
operations. Accrue Insight employs Accrues unique network
collector technology for data collection and enables customers
to define tailored views of their data.



| |                                               
| | ----------------------------------------------
| | Professional Services and Customer
    Support

Technical Support.We provide technical support to our customers through telephone,
email, our Web site and on-site training. Support is available
at multiple service levels and response times designed to fit
the customers individual needs. Our Web site includes an
online bulletin board for our customers to share ideas and
questions, and a knowledge base that provides access to
information on historical trouble-shooting cases. Annual
maintenance contracts are priced as a percentage of the list
price of the software license fee.

Training.We offer
frequent training sessions at the introductory and advanced
levels for both system administration and end users. These
classes are typically held at an Accrue office but are available
at the customer site by special arrangement. We also offer
periodic online education classes and workshops.

Consulting.We offer
consulting services to customers on either a fixed fee or time
and materials basis. Some of our current consulting services and
applicable fees include the following:



| |   |                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Implementation
    Services Accrue provides a
    comprehensive implementation service. The Accrue project manager
    works with the client to develop a detailed project plan,
    recommendations for site configuration, and recommendations for
    reporting and analysis. The service is provided in three phases:



| |    |                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | The analysis phase includes project initiation,
    analysis and recommendations for optimal site definition and
    reporting requirements.
|
| | 2. | The installation and training phase includes the
    installation and configuration of Accrue G2 and system
    administration training.    
|
| | 3. | The filter and report setup phase includes batch
    report creation, filter setup and configuration of the user
    profiles.              



| |   |                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Application
    Bridges Accrue provides
    planning and implementation services to integrate data from
    leading e-business infrastructure applications including Art
    Technology Group, BEA Systems, BroadVision, DoubleClick and
    Vignette.                                          
|
| |  | Custom Data Integration and
    Reporting Accrue provides
    integration of data from a variety of sources, including CRM
    databases, into Accrue G2, in addition to support in the
    development of specialized, customer reporting or analysis
    capabilities, billed at a daily rate.

We have also established a number of alliances
with software service providers to supplement our internal
service capacity to customers as required to meet their
deadlines and specifications.

Customers and Partners

A critical element of our sales and marketing
strategy is to establish alliances and partnerships to provide
integrated solutions to our customers, extend our sales reach,
assist in implementation and customization of our solutions, and
broaden our brand awareness. Accrue has strategic application
and platform partnerships with leading technology companies such
as IBM, Oracle, Sun Microsystems, BroadVision, ATG, DoubleClick

6



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and Vignette. Most of our strategic relationships
are not subject to binding agreements, have no specified
performance requirements by us or by our alliance partners, and
may be terminated by either party at any time.


We have over 100 customers of our Internet
analytics products. While our customers represent a number of
diverse industries, we have focused on three primary verticals:
retail commerce; publishing, media and entertainment; and
financial services. The following is a representative list of
our customers:

|                                                                                                                 |  |                                                                                                                                                                                |  |                                                                                                                         |  |                                                                                                                     
|---------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------
|                                                                                                                 |  | Publishing, Media &                                                                                                                                                            |  |                                                                                                                         |  |                                                                                                                     
|Retail Commerce                                                                                                  |  | Entertainment                                                                                                                                                                  |  | Financial Services                                                                                                      |  | Other                                                                                                               
|                                                                                                                 |  |                                                                                                                                                                                |  |                                                                                                                         |  |                                                                                                                     
|Bertelsmann
    DHL Airways
    Federated Stores
    Gateway
    Lands End
    Sothebys
    Staples
    Target |  | Bluewin (Swisscom)
    Bridges
    Classified Ventures
    Dow Jones
    Knight Ridder
    Lycos Europe
    MTV
    Standard & Poors
    Vivendi Universal
    Yellow Pages UK |  | A.G. Edwards
    Bank of America
    CIBC
    Citicorp
    HSBC
    State Street Bank
    T. Rowe Price
    Wells Fargo |  | Alcatel
    Deutsche Telekom
    EMC
    GE Plastics
    Incyte Genomics
    Kodak
    Motorola
    Nokia
    Xilinx

Technology and Architecture

Accrue G2 was designed to provide a robust
architecture for customers to implement flexible, scalable,
detailed and accurate Internet analysis. The Accrue architecture
is compatible with documented application programming interfaces
(APIs), protocols and file formats to enable integration with
external systems such as Web applications (such as commerce
servers and ad servers) and business process applications (such
as sales force automation systems and call center systems). The
architecture adheres to numerous standard programming languages,
including hypertext machine language, or HTML, Java and C, and
network protocols, including hypertext transfer protocol, or
HTTP. In addition, we believe that our system architecture is
flexible and powerful enough to serve as the foundation for
related future products.

The Accrue G2 system architecture may be viewed
as a series of layers, each performing specific functions
between our customers Web site and their visitors.

Collection Layer.The collection modules consist of our network collector, server
collector and log file collector, client side collection
capability, and universal collector, each of which obtains data
from different sources. Our network collector is the most
comprehensive collection module within Accrue G2 and obtains
data from the network through packet sniffing technology. Our
server collector is a customized module which plugs directly
into the customers Web server for use in environments
where encryption of network traffic prevents packet sniffing,
such as in credit card processing and banking applications. Our
log file collector may also be used when encrypted or secure Web
servers are employed or to obtain customer legacy data that
existed prior to installation of packet sniffing technology
contained in our network collector. Our client side collection
comprises java code that is embedded into clients Web
pages to enable specific, clean data collection. Our universal
collector is software that enables customized data collection
from a variety of data sources. All of these collection modules
may be used in any combination to gather and consolidate data
into the Accrue G2 data warehouse.

Modeling Layer.Our
analyzer provides a fast, flexible mechanism for filtering,
segmenting, organizing, and optimizing collected data into a
configuration model based on customer defined rules. Our
analyzer performs the following tasks:



| |   |                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------
| |  | Sews or stitches collector data into a coherent
    view of the customer experience and Internet environment;
|
| |  | Translates raw hit information into concepts such
    as page views and the time spent viewing a page;       

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| |   |                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------
| |  | Aggregates and transposes raw Web server
    transaction data into higher level information, discarding
    unnecessary data;
|
| |  | Tracks visitors across Web servers, time zones
    and different authentication mechanisms; and                              
|
| |  | Creates sets of data to be loaded into the data
    warehouse or OLAP cubes.                                                 

Storage Layer.The
storage layer consists of a data warehouse for storing Web
customer activity data processed by the analyzer, Web site
definition data and Web network configuration data, collectively
known as meta data or data about data. The storage layer also
consists of an online analytical processing, or OLAP, database
for direct access to summarized data. In addition, the storage
layer includes a database administration subsystem capable of
handling high volumes of data in order to alleviate the
customers need to dedicate excessive resources to data
administration.

Data Access Layer.The data access layer consists of an API that provides a unified
view into the various storage facilities that make up the data
warehouse within Accrue G2. It can also be used to access
external databases, such as those containing customer profile,
demographic information and transaction data.

Presentation Layer.Accrue G2s reporting interface uses hybrid OLAP technology
developed by Pilot Software to provide all users with
interactive analysis. The Accrue G2 dashboard enables each
business user to rapidly access key metrics immediately.
Functional analysis workspaces provide relevant reports based on
a users role in the organization, including executive
management, marketing, merchandising, customer service and IT
operations.

Integration Layer.We originally designed Accrue G2 and continue to enhance its
features to allow for maximum integration into existing systems
and the creation of new functionality. Accrue G2 can be
integrated into existing systems through the following APIs:



| |   |                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Network Collector
    API.Our network collector API allows
    business rules to be invoked as data is being collected. For
    instance, the collector can be instructed not to save any hits
    for graphic images, and to ignore all hits from the local domain. 
|
| |  | Analyzer API.Our
    analyzer API allows third party applications to tailor how the
    analyzer executes. For instance, this API may cause the Analyzer
    to rewrite the URL to be more analysis friendly, such as in the
    case of the Vignette Profile Bridge.
|
| |  | Data Access API.Our
    data warehouse provides a unified view of various legacy and
    third party databases and data marts.                                                                                                                                       

Industry Standards

We use many widely accepted standards in
developing our products, including structured query language, or
SQL, and open data base connectivity, or ODBC, for accessing the
data warehouse, Netscape Application Programming Interface, or
NSAPI, for accessing Netscapes Web servers, hypertext
transfer protocol, or HTTP, for communication between collectors
and the central warehouse machine, and hyper-text machine
language, or HTML and Java for user interfaces. In addition,
Accrue G2 contains software that supports the ABC Interactive
digital signature standard, used for auditing log files for
tampering. Most of our software is written in C and Java, two
widely accepted standard programming languages for applications
development. Adherence to industry standards provides
compatibility with existing applications, enables ease of
modification, and reduces the need for software to be rewritten,
thus protecting the customers investment.

Sales and Marketing

We currently market and sell our products through
a direct sales force in North America and Europe and, to a
lesser extent, through distributors internationally. We intend
to continue to expand our marketing and selling efforts through
partnering with third parties.

Initial sales activities typically include
presentations to the appropriate business executives within the
customers organization, such as the vice president of
sales, vice president of marketing, or e-commerce

8



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director, followed by a demonstration of our
products capabilities, followed by one or more discussions
about architecture and supporting technologies with the IT
organization. Although product trials and evaluation of the
software are usually not required, we may perform pilot tests to
allow the customer to become familiar with the details of our
applications.


Building brand awareness is key to our success.
We employ a number of marketing vehicles to promote our brand in
the e-business analysis market and to generate leads for our
sales organization. Traditional methods include press releases,
product reviews and discussions with industry analysts and
attendance at trade shows and seminars. We have found that
emerging means of communication, such as email and Web seminars,
provide us with even greater reach at lower cost. Continued
investment into our own Web site is critical to maintain our
image in the e-business community and to generate sales leads.
We also post important information about our products,
technology and organization on our Web site for potential
customers ease of access. Finally we publish data sheets,
white papers and articles concerning our products and services.

Our sales and marketing organization consisted of
23 full-time employees as of March 30, 2002. The sales and
marketing staff is based in our corporate offices in Fremont,
California. We also have field sales staff located in the
metropolitan areas of Boston, Washington, D.C. and New
York, as well as international staff in Canada, Germany and
England.

Research and Development

We believe that our future success will depend on
our ability to maintain and improve current products and to
develop new products that meet Internet analytics market needs.
As of March 30, 2002, our research and development
organization consisted of 29 full-time employees. Product
requirements are based on customer feedback, technical support
experience, and market analysis and technology trends. We employ
a professional development methodology that monitors customer
satisfaction, quality, cost and delivery schedules.

Customer Services and Support

Our customer service and support is an important
element to the successful marketing and sale of our products.
Implementation, system integration, training and other related
professional services are available during the initial system
implementation as well as afterwards, based on customer demand
and requirements. These services are provided under either a
fixed price or time and materials contract. Maintenance and
support contracts, which are typically for twelve months and
sold with an initial license, may be renewed annually and are
typically set at a percentage of the license fee. Our
maintenance and support contracts entitle the customers to
software patches, updates and upgrades at no additional cost,
and when available, unlimited access to our Web based customer
support information and request system and direct assistance
from the customer support hotline. As of March 30, 2002,
our services and support organization consisted of 35 full-time
employees.

Competition

We compete in the Internet analytics segment of
the business intelligence software market. This market is highly
competitive and highly fragmented, and is characterized by
rapidly changing technology and evolving standards and user
requirements. We expect competition in the market to increase.
We compete principally with vendors of Web analytics software,
traditional customer relationship management systems, data
analysis and marketing software, and business intelligence
software. Our competitors include, among others,
NetIQ/Webtrends, SPSS/NetGenesis, E.piphany, Coremetrics and
digiMine.

We believe that the principal competitive factors
affecting our market are:



| |   |                                                                     
| | - | --------------------------------------------------------------------
| |  | product features;                                                   
|
| |  | product performance, including scalability and
    integrity;       
|
| |  | ease of integration with customers existing
    enterprise systems;

9



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##### Table of Contents





| |   |                                    
| | - | -----------------------------------
| |  | quality of support and service; and
|
| |  | company reputation and resources.  

Our competitive position in the market is
uncertain, due principally to the variety of current and
potential competitors, and the emerging nature of the market. We
have experienced and expect to continue to experience increased
competition from current and potential competitors, many of whom
have significantly greater financial, technical, marketing and
other resources than us. We expect additional competition as
other established and emerging companies develop business and
Internet analytics products and technologies. Increased
competition could result in price reductions, fewer customer
orders, reduced gross margins, longer sales cycles and loss of
market share, any of which could materially and adversely affect
our business, operating results and financial condition.

Intellectual Property and Other Proprietary
Rights

We are a technology company. Our success depends
on protecting our intellectual property assets. If we do not
adequately protect our intellectual property, our business,
financial condition and results of operations would be seriously
harmed.

We license our software and require our customers
to enter into license agreements, which impose restrictions on
our customers ability to utilize the software. In
addition, we seek to avoid disclosure of our trade secrets,
including but not limited to requiring those persons with access
to our proprietary information to execute confidentiality
agreements with us and restricting access to our source code. We
seek to protect our software, documentation and other written
materials under trade secret and copyright laws, which afford
only limited protection.

We currently have no issued U.S. or foreign
patents. We have applied for one U.S. patent and we have no
pending foreign patent applications. It is possible that no
patents will issue from our currently pending patent application
and that our potential future patents may be found invalid or
unenforceable, or otherwise be successfully challenged. It is
also possible that any patent issued to us may not provide us
with any competitive advantages, that we may not develop future
proprietary products or technologies that are patentable, and
that the patents of others may seriously limit our ability to do
business. In this regard, we generally have not performed any
comprehensive analysis of patents of others that may limit our
ability to do business.

Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy aspects of our
products or to obtain and use information that we regard as
proprietary. Policing unauthorized use of our products is
difficult, and while we are unable to determine the extent to
which piracy of our software products exists, software piracy
can be expected to be a persistent problem. In addition, the
laws of some foreign countries do not protect our proprietary
rights to as great an extent as do the laws of the United
States. A discussion of risks associated with the protection of
our intellectual property rights and potential infringement by
us of the patents and intellectual property rights of others is
presented in the section below titled Risk Factors.

Employees

At March 30, 2002, Accrue had
98 full-time employees, including 29 in product
development, 23 in sales and marketing, 35 in customer service
and support and 11 in general and administrative functions.
Accrue implemented a reduction in force in April 2002 and also
transferred certain employees to Pilot Software Acquisition
Corporation, an unrelated third party, in May 2002 in connection
with a transfer and sale of its Pilot and HitList technology
assets. See Managements Discussion and Analysis of
Financial Condition and Operating Results. At May 31,
2002 Accrue had 62 full-time employees, including 18 in
product development, 11 in sales and marketing, 24 in customer
service and support and 9 in general and administrative
functions. From time to time, we also employ independent
contractors to support our engineering, marketing, sales and
support and administrative organizations. We believe that our
relations with our employees are good.

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##### Table of Contents



Our success depends to a significant degree upon
the continued contributions of our management, engineering,
sales and marketing personnel, many of whom would be difficult
to replace. If we fail to attract and retain high quality
employees, our business operations and operating revenues may be
impaired. Our recent workforce reductions may hurt the morale
and loyalty of our employees. Additionally, the recent reduction
of cash bonuses, executive salaries and some employee fringe
benefits may reduce incentives for our employees to remain with
us. We do not maintain key person life insurance for
any of our executive management.

We depend on a direct and indirect sales force
for the majority of our product sales. We may not be able to
attract and retain qualified sales personnel. In the last twelve
months, we have experienced significant turnover of our sales
force, including two Vice Presidents of Sales. As turnover tends
to slow our sales efforts while replacement personnel are
recruited and trained, our revenue generating ability may be
impaired.

In April 2002, we implemented a 20% reduction in
our worldwide workforce. A discussion of potential risks
associated with our employees is presented in the section below
titled Risk Factors.






|        |           
|------- | ----------
|Item 2. | Properties

Information about our principal executive offices
and other facilities is included in the following table. We
lease all of our existing facilities.

|                         |  |                |        |                 |  |                    |  |                                                               
|------------------------ |  | -------------- | ------ | --------------- |  | ------------------ |  | --------------------------------------------------------------
|                         |  | Approximate    |        | Lease           |  |                   
|Location                 |  | Square Footage |        | Expiration Date |  | Description of Use
|                         |  |                |        |                 |  |                   
|Fremont, California      |  |                | 19,255 |                 |  | March 31, 2003     |  | Executive, research and development and sales
    offices     
|Cambridge, Massachusetts |  |                | 6,860  |                 |  | March 31, 2005     |  | Research and development, regional sales and
    service staff
|Cologne, Germany         |  |                | 5,140  |                 |  | March 31, 2004     |  | Sales and support office                                      
|Stirling, Scotland       |  |                | 3,000  |                 |  | September 5, 2002  |  | Research and development office                               
|Toronto, Canada          |  |                | 160    |                 |  | January 1, 2003    |  | Sales office                                                  
|Seattle, Washington      |  |                | 140    |                 |  | March 31, 2003     |  | Support staff office                                          
|Lisle, Illinois          |  |                | 2,560  |                 |  | July 31, 2003      |  | Sublet to third party                                         
|Clifton, New Jersey      |  |                | 2,250  |                 |  | June 30, 2003      |  | Sublet to third party                                         
|                         |  |                |        |                 |  |                    |  |                                                               
|                         |  |                | 39,365 |                 |  |                    |  |                                                               
|                         |  |                |        |                 |  |                    |  |                                                               

We have agreements to sublease approximately
4,810 square feet of our existing facilities located in
Illinois and New Jersey. On May 30, 2002, in connection
with the sale of certain assets related to Pilot and HitList
products to Pilot Software Acquisition Corporation, an unrelated
third party, we have sub-leased 60% of the Cambridge office
facility to Pilot Software Acquisition Corporation. We believe
that our existing facilities are adequate to meet our current
and future requirements or that suitable additional or
substitute space will be available as needed.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

We are not currently subject to any material
legal proceedings except that on February 20, 1999,
Execplan Sistemas Executivos Ltda., a former distributor of our
wholly-owned subsidiary Pilot Software, Inc.s products in
Brazil, filed a Claim for Arbitration with the American
Arbitration Association in connection with Pilots failure
to enter into a new distribution agreement with Execplan when
the prior agreement between the parties terminated by its terms.
Execplan has made a claim for damages in the amount of
$15 million. Pilot denied Execplans claim and filed a
counterclaim alleging, among other things, breach of contract,
misappropriation of Pilot trade secrets and infringement of
Pilot copyrights. The arbitration proceedings will take place in
Boston, Massachusetts, and we will vigorously defend against
Execplans claim, which we believe to be without merit. In
addition, under the terms of the Agreement and Plan of Merger

11



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##### Table of Contents



dated as of August 24, 2000 among Accrue,
Pilot, Pilot Acquisition Corp., Aviator Holding Corporation and
Platinum Equity Holdings, LLC (the Pilot Merger
Agreement), we have a right of indemnification against
Platinum if damages awarded to Execplan in the arbitration
exceed $500,000.


The German Tax Authority is auditing the tax
returns of the German subsidiary of Pilot Software, which the
Company acquired in September 2001, for the tax years 1995-1999.
In connection with this audit, the German Tax Authority has
disputed the transfer pricing methodologies and other deductions
contained in those tax returns. The Tax Authority has issued a
notice of tax deficiency in the amount of 1.5 million DM
related to the tax returns for the years 1996 and 1997. The
Company is contesting these claims. In addition, under the terms
of the Pilot Merger Agreement, the Company has a right to
indemnification against Platinum Equity Holdings, LLC (Platinum)
for damages related to tax claims against Pilot Software, Inc.
and its subsidiaries arising prior to the date of the
acquisition of Pilot Software, Inc.

In addition, we may from time to time become a
party to various legal proceedings arising in the ordinary
course of our business.

There can be no assurance that the matters
discussed above will be resolved without costly litigation, or
in a manner that is not materially adverse to our financial
position, results of operations or cash flows. No estimate can
be made of the possible loss or possible range of loss
associated with the resolution of these contingencies.
Furthermore, there can be no assurance that Accrue will be able
to enforce its indemnification right against Platinum, if
Platinum disputes such claims without undue cost or delay. As
additional information becomes available, Accrue will assess its
potential liability, if any.






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

No matters were submitted to a vote of security
holders during the fourth quarter of the fiscal year covered by
this Report.

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PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters

(a) Market Information; Recent Sales of
Unregistered Securities. Our common stock has been trading
on the Nasdaq National Stock Market under the symbol
ACRU from July 30, 1999, the date of our
initial public offering to May 12, 2002. On May 13,
2002 our common stock began trading on the Nasdaq SmallCap
Market. As used herein, we collectively refer to both the Nasdaq
National Market and Nasdaq SmallCap Market as
Nasdaq. The following table sets forth, for the
periods indicated, the high and low sales prices per share of
our common stock as reported on Nasdaq:

|                                 |  |      |         |     |  |   |         | 
|-------------------------------- |  | ---- | ------- | --- |  | - | ------- | 
|                                 |  | High |         | Low
|                                 |  |      |         |    
|Year Ended March 31, 2000        |  |      |         |     |  |   |         | 
|2nd Quarter (from July 30, 1999) |  | $    | 23.0000 |     |  | $ | 10.4531 | 
|3rd Quarter                      |  |      | 63.2500 |     |  |   | 21.8125 | 
|4th Quarter                      |  |      | 62.8750 |     |  |   | 37.3750 | 
|Year Ended March 31, 2001        |  |      |         |     |  |   |         | 
|1st Quarter                      |  |      | 40.0000 |     |  |   | 19.1250 | 
|2nd Quarter                      |  |      | 35.9375 |     |  |   | 11.7500 | 
|3rd Quarter                      |  |      | 11.5625 |     |  |   | 1.0000  | 
|4th Quarter                      |  |      | 2.8750  |     |  |   | 0.1875  | 
|Year Ended March 30, 2002        |  |      |         |     |  |   |         | 
|1st Quarter                      |  |      | 1.7400  |     |  |   | 0.1300  | 
|2nd Quarter                      |  |      | 0.6000  |     |  |   | 0.1300  | 
|3rd Quarter                      |  |      | 0.7200  |     |  |   | 0.1800  | 
|4th Quarter                      |  |      | 0.9500  |     |  |   | 0.4400  | 

On May 31, 2002, the closing sale price for
our common stock was $0.25 per share. On this date, there were
approximately 500 holders of record of our common stock.
This figure does not reflect several hundred beneficial
stockholders whose shares are held in nominee names. During the
fiscal years 2001 and 2002 we did not pay any dividends. We
presently intend to retain future earnings to finance the growth
and development of our business, and as such, we do not
anticipate paying cash dividends on our common stock in the
foreseeable future.

The market price of our common stock has
experienced large fluctuations and may continue to be volatile
in the future. Factors such as future announcements concerning
us or our competitors, quarterly variations in operating
results, continuing losses, announcements of technological
innovations, the introduction of new products or changes in
product pricing policies by us or our competitors, proprietary
rights or other litigation, or other factors could cause the
market price of our common stock to fluctuate substantially.
Further, the stock market has from time to time experienced
extreme price and volume fluctuations, which have affected the
market price for many high technology companies and which, on
occasion, have been unrelated to the operating performance of
those companies. These fluctuations, as well as the general
economic, market and political conditions both domestically and
internationally, including recessions or military conflicts, may
materially and adversely affect the market price of our common
stock. In addition, we may not be able to comply with all
continued listing requirements of Nasdaq, which would result in
our stock being subject to delisting by Nasdaq. See the section
below titled Risk Factors.

On September 30, 1999, in connection with
our acquisition of Marketwave Corporation, we issued in exchange
for all outstanding shares of capital stock of Marketwave,
2,880,475 unregistered shares of common stock and we
assumed Marketwave options that were subsequently exercised for
344,786 shares of Accrue common stock. Because these shares
were issued to a limited number of Marketwave shareholders, we
relied on the exemption provided by Section 4(2) of the
Securities Act in issuing these shares. These shares were

13



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##### Table of Contents



registered on a Registration Statement on
Form S-1 (Reg. No. 333-32066) (the
Resale S-1) that was declared effective by the
SEC on or about March 22, 2000. If such shares were not
sold pursuant to the Resale S-1, they were subsequently
de-registered and 1,088,309 of the remaining unsold shares were
re-registered on a Registration Statement on Form S-3 that
was declared effective by the SEC on December 14, 2000. We
also assumed Marketwave options that were outstanding for
218,081 shares of our common stock, which option shares
were subsequently registered on a Registration Statement on
Form S-8 on February 1, 2000.


On January 14, 2000, in connection with our
acquisition of NeoVista Software, Inc., we issued in exchange
for all outstanding shares of capital stock and warrants of
NeoVista, 1,782,078 unregistered shares of our common
stock. We also assumed NeoVista options and warrants that were
exercisable for 546,749 shares of our common stock, which
option shares were subsequently registered on a Registration
Statement on Form S-8 on February 1, 2000. The shares
issued by us in this transaction were issued pursuant to the
exemption provided by Section 3(a)(10) of the Securities
Act and in connection with a hearing conducted by the California
Commission of Corporations which found the offering to be fair
to NeoVista security holders.

On July 14, 2000, we acquired specific
assets of the InfoCharger division of Tantau Software
International, Inc. In exchange for specific assets of
InfoCharger, we issued approximately 1,666,667 shares of our
common stock and made a cash payment of $5 million to
license certain Tantau technology. Because these shares were
issued to a limited number of shareholders, we relied on the
exemption provided by Section 4(2) of the Securities Act in
issuing these shares. These shares were subsequently registered
pursuant to a registration statement on Form S-3/A,
declared effective by the SEC on December 14, 2000.

On September 20, 2000, we acquired Aviator
Holding Corporation and its direct and indirect subsidiaries,
including its wholly owned subsidiary Pilot Software, Inc.
(Pilot). In exchange for the acquisition of all of
Aviator Holding Corporations outstanding common stock, we
issued 974,273 shares of our common stock. Because these shares
were issued to a limited number of shareholders, we relied on
the exemption provided by Section 4(2) of the Securities
Act in issuing these shares. These shares were subsequently
registered pursuant to a registration statement on
Form S-3, declared effective by the SEC on
December 14, 2000.

Equity Compensation Plan Information

The following table provides the information
about Accrues common stock that may be issued upon the
exercise of options and rights under all of our existing equity
compensation plans as of March 30, 2002, including the 1996
Stock Plan, 1999 Directors Stock Option Plan, 1999
Employee Stock Purchase Plan, 2000 Non-Executive Stock Option
Plan, NeoVista 1991 Incentive Stock Option Plan and Marketwave
1997 Stock Plan.

|                                                               |  |                        |           |                   |  |                           |       |     |  |  |           |    
|-------------------------------------------------------------- |  | ---------------------- | --------- | ----------------- |  | ------------------------- | ----- | --- |  |  | --------- | ---
|                                                               |  |                        |           |                   |  | Number of securities     
|                                                               |  | Number of securities   |           |                   |  | remaining available for  
|                                                               |  | to be issued upon      |           | Weighted-average  |  | future issuance under    
|                                                               |  | exercise of            |           | exercise price of |  | equity compensation plans
|                                                               |  | outstanding options,   |           | outstanding       |  | as of March 30, 2002     
|                                                               |  | warrants and rights as |           | options, warrants |  | (excluding securities    
|Plan category                                                  |  | of March 30, 2002      |           | and rights        |  | reflected in column (a)) 
|                                                               |  |                        |           |                   |  |                          
|                                                               |  | (a)                    |           | (b)               |  | (c)                      
|Equity compensation plans approved by security
    holders     |  |                        | 4,867,015 | (1)               |  | $                         | 2.26  | (1) |  |  | 2,766,465 | (1)
|                                                               |  |                        |          | (2)               |  |                           |      | (2) |  |  | 450,000   | (2)
|                                                               |  |                        |          | (3)               |  |                           |      | (3) |  |  | 347,000   | (3)
|Equity compensation plans not approved by
    security holders |  |                        | 125,000   | (4)               |  | $                         | 13.78 | (4) |  |  | 875,000   | (4)
|                                                               |  |                        | 5,151     | (5)               |  | $                         | 4.14  | (5) |  |  |          | (5)
|                                                               |  |                        | 2,787     | (6)               |  | $                         | 0.44  | (6) |  |  |          | (6)
|                                                               |  |                        |           |                   |  |                           |       |     |  |  |           |    
|Total                                                          |  |                        | 4,999,953 |                   |  | $                         | 2.55  |     |  |  | 4,438,465 |    
|                                                               |  |                        |           |                   |  |                           |       |     |  |  |           |    

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---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | To be issued under the 1996 Stock Plan. The 1996
    Stock Option Plan includes an evergreen feature,
    which provides for an automatic annual increase in the number of
    shares available under the plan on the first day of each of the
    Companys fiscal years through April 1, 2006, equal to
    the lesser of 4,000,000 shares, 6% of Accrues outstanding
    common stock on the last day of the immediately preceding fiscal
    year or a lesser number of shares as determined by the
    Companys Board of Directors.                                                                                                                                                                                                                                                                                                                                                               
|   
|(2) | To be issued under the 1999 Directors Stock
    Option Plan. The 1999 Directors Stock Option Plan includes
    an evergreen feature, which provides for an
    automatic annual increase in the number of shares available
    under the plan on the first day of each of the Companys
    fiscal years through April 1, 2004, equal to the lesser of
    100,000 shares or 0.5% of Accrues outstanding common stock
    on the last day of the immediately preceding fiscal year.                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(3) | To be issued under the 1999 Employee Stock
    Purchase Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(4) | To be issued under the 2000 Non-Executive Stock
    Option Plan, which was initiated in September 2000 in connection
    with the acquisition of Pilot. Initially, 743,000 shares were
    granted to former Pilot employees who joined Accrue subsequent
    to the acquisition. Under the plan, Accrue is authorized to
    issue up to 1,000,000 shares of common stock and grant
    non-qualified stock options to employees and consultants at
    prices not lower than 85% of fair market value at the date of
    grant, as determined by the Board of Directors. The Board also
    has the authority to set the term of the options (no longer than
    ten years from date of grant). Unexercised options expire three
    months after termination of employment with Accrue, or at such
    earlier (but not earlier than 30 days) or later time as
    determined by the Board of Directors.
|   
|(5) | Options issued under the NeoVista 1991 Incentive
    Stock Option Plan, which was assumed in Accrues
    acquisition of NeoVista Software, Inc. on February 14, 2000
    (the NeoVista Plan). Upon assuming the NeoVista
    Plan, Accrue reserved 550,000 shares of its common stock for
    issuance to the then existing holders of options under the
    NeoVista Plan; however, no further options have been or will be
    granted. Since Accrue assumed the NeoVista Plan, options to
    purchase all but 5,151 shares have terminated or have been
    exercised.                                                                                                                                                                                                                                                                                                                              
|   
|(6) | Options issued under the Marketwave 1997 Stock
    Plan, which was assumed in Accrues acquisition of
    Marketwave Corporation on September 30, 1999 (the
    Marketwave Plan). Upon assuming the Marketwave Plan,
    Accrue reserved 566,000 shares of its common stock for issuance
    to the then existing holders of options under the Marketwave
    Plan; however, no further options have been or will be granted.
    Since Accrue assumed the Marketwave Plan, options to purchase
    all but 2,787 shares have terminated or have been exercised.                                                                                                                                                                                                                                                                                                                                         

(b) Use
of proceeds from sale of Registered Securities

On August 4, 1999, we completed an initial
public offering of our Common Stock, pursuant to a Registration
Statement on Form S-1 (the Registration
Statement) (Reg. No. 333-79491) that was declared
effective by the SEC on July 29, 1999.

All net proceeds from the offering have been
expended. We used the net proceeds primarily for working capital
and general corporate purposes, including funding product
development and expanding our sales and marketing organization.
In addition, we used a portion of the net proceeds for further
development of our product lines through acquisitions of
products, technologies and businesses.

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|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

Financial Summary

|                              |                                        |                                       |   |           |   |           |   |           |   |           |   |         |   |  |   |          |   |  |   |         |  
|----------------------------- | -------------------------------------- | ------------------------------------- | - | --------- | - | --------- | - | --------- | - | --------- | - | ------- | - |  | - | -------- | - |  | - | ------- | -
|                              |                                        |                                      
|                              |                                        | At or for the Years Ended            
|                              |                                        |                                      
|                              |                                        | March 31,                             |   | March 31, |   | March 31, |   | March 31, |   | March 30,
|                              |                                        | 1998(1)                               |   | 1999(1)   |   | 2000      |   | 2001      |   | 2002     
|                              |                                        |                                       |   |           |   |           |   |           |   |          
|                              |                                        |                                      
|                              |                                        | (in thousands, except per share data)
|Statement of operations data: |                                        |                                       |   |           |   |           |   |           |   |           |   |         |   |  |   |          |   |  |   |        
|                              | Revenue                                |                                       | $ | 2,057     |   |           | $ | 4,684     |   |           | $ | 18,864  |   |  | $ | 25,634   |   |  | $ | 14,308  |  
|                              | Gross profit                           |                                       |   | 1,829     |   |           |   | 4,215     |   |           |   | 16,096  |   |  |   | 16,720   |   |  |   | 7,403   |  
|                              | Net loss(2)                            |                                       |   | (4,201    | ) |           |   | (7,601    | ) |           |   | (21,119 | ) |  |   | (211,219 | ) |  |   | (12,107 | )
|                              | Net loss per share, basic and diluted  |                                       |   | (0.99     | ) |           |   | (1.63     | ) |           |   | (1.33   | ) |  |   | (7.55    | ) |  |   | (0.41   | )
|Balance sheet data:           |                                        |                                       |   |           |   |           |   |           |   |           |   |         |   |  |   |          |   |  |   |        
|                              | Cash and cash equivalents              |                                       |   | 570       |   |           |   | 2,862     |   |           |   | 31,754  |   |  |   | 11,951   |   |  |   | 2,646   |  
|                              | Working capital (deficit)              |                                       |   | 232       |   |           |   | 2,529     |   |           |   | 30,192  |   |  |   | 4,192    |   |  |   | (1,068  | )
|                              | Total assets                           |                                       |   | 2,112     |   |           |   | 6,109     |   |           |   | 160,899 |   |  |   | 30,269   |   |  |   | 11,772  |  
|                              | Long-term debt, net of current portion |                                       |   | 312       |   |           |   | 169       |   |           |   | 39      |   |  |   |         |   |  |   |        |  
|                              | Total stockholders equity             |                                       |   | 557       |   |           |   | 3,414     |   |           |   | 151,987 |   |  |   | 17,860   |   |  |   | 5,630   |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The selected financial data at or for the years
    ended March 31, 1998 and 1999 have been restated to include
    financial results of Marketwave Corporation.                                                                                                                                                                                                                                                                                                                                                               
|   
|(2) | Net loss for the year ended March 30, 2002
    includes a charge for impairment of intangible assets of
    $1.2 million and amortization of intangibles of
    $4.6 million. Net loss for the year ended March 31,
    2001 includes a charge for impairment of goodwill of
    $139.7 million, amortization of intangibles of
    $49.6 million and in-process research and development
    charge of $4.5 million. Net loss for the year ended
    March 31, 2000 includes amortization of intangibles of
    $10.9 million.






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

The following discussion of the financial
condition and results of operations of Accrue Software should be
read in conjunction with Selected Consolidated Financial
Data and our consolidated financial statements and notes
thereto and other information included elsewhere in this report.
Certain statements in this Managements Discussion
and Analysis of Financial Condition and Results of
Operations are forward-looking statements. The
forward-looking statements contained herein are based on current
expectations and entail various risks and uncertainties that
could cause actual results to differ materially from those
expressed in such forward-looking statements. For a more
detailed discussion of these and other business risks, see
Risk Factors below.

Overview

We develop, sell and market Internet analytics
software solutions. Our products collect, process and provide
capabilities to analyze data from Web sites, which enables
customers to better evaluate, manage and improve the
effectiveness of their critical Internet based marketing and
merchandising initiatives.

We were founded in 1996 and are headquartered in
Fremont, California. We have international offices in the United
Kingdom, Canada, France and Germany. Accrue Insight 1.0,
our initial product, shipped in January 1997. We completed an
underwritten public offering in July 1999. The Companys
initial marketing efforts focused on both dot-com
and emerging e-business companies, and more established
enterprises that were establishing Internet based business
initiatives.

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We have sustained losses on a quarterly and
annual basis since inception. At March 30, 2002, we have an
accumulated deficit of approximately $258.2 million. Our
net loss was approximately $21.1 million in fiscal year
2000, $211.2 million in fiscal year 2001 and
$12.1 million in fiscal year 2002. These losses resulted
from significant costs incurred in the development and sale of
our products and services and, particularly in fiscal year 2001,
merger related costs and non-cash charges for the impairment of
goodwill associated with the acquisitions of NeoVista Software,
Inc., Pilot Software, Inc. and InfoCharger, a division of Tantau
Software International, Inc. We anticipate that operating
expenses will continue to constitute a material use of our cash
resources. If we do achieve profitability, we cannot be certain
that we can sustain or increase profitability on a quarterly or
annual basis in the future, or at all.

You should not rely upon our past operating
results as an indication of future performance. While we have
experienced significant percentage growth in revenues in recent
periods, we have a limited operating history and we do not
believe that prior growth rates are sustainable or indicative of
future growth rates. Additionally, Accrue continues to use
available cash in its operations and current cash resources
available are likely insufficient to fund our operations until
we reach positive cash flow. We are evaluating various
initiatives to improve our cash position, including selling
additional stock, incurring additional debt, implementing
further restrictions on spending and other cash generating
initiatives. Failure to generate sufficient revenues, reduce
certain discretionary spending or raise additional capital could
have a material adverse effect on Accrues ability to
continue as a going concern and to achieve its intended business
objectives. See Liquidity and Capital Resources
below and Risk Factors.

Impact of the Economic Downturn

During fiscal year 2001, we focused the majority
of our resources and efforts around the development and launch
of the Accrue G2 product. Technology assets obtained pursuant to
several prior acquisitions were used to support the development
of Accrue G2, which integrates the technologies from the
NeoVista, InfoCharger and Pilot acquisitions and Insight code
base. During the third quarter of fiscal year 2001, the downturn
in the dot-com sector and resulting slowdown in IT spending
significantly impacted our operating results. A large number of
our customers postponed purchases and many went out of business.
Quarterly revenues fell from an average of approximately
$10 million in the first half of fiscal year 2001 to an
average of approximately $3 million in the second half of
the fiscal year. In light of the changes in market conditions,
we recorded significant goodwill impairment charges in fiscal
year 2001.

We continued to experience weak economic
conditions during fiscal year 2002, including an economy in
recession and continued slowdown in IT spending. In response, we
undertook several initiatives designed to help scale the
business to its revenue base, focus on the successful launch of
Accrue G2 and reduce our cash burn rate. These initiatives
included recruiting a new senior executive management team,
selling assets that were not core to our Accrue G2 and Insight
products, and reducing operating expenses. Headcount was reduced
from 144 at March 31, 2001 to 98 at March 30, 2002,
and other non-labor expenses were reduced. Revenues for the
first three quarters of fiscal year 2002 increased modestly from
quarter to quarter, but fell in the fourth quarter as compared
to the third quarter due to customers delaying or deferring
IT spending in response to the continuing weak
US economy. In response to the revenue decline in the
fourth quarter, we have taken several actions to reduce our
operating expenses further during fiscal 2003. To date in
fiscal year 2003, we implemented a 20% headcount reduction, cut
executive salaries by 10%, reduced certain cash bonuses and some
employee fringe benefits and continued to reduce overall
operating expenses.

Acquisitions and Divestitures

Since September 1999, we have consummated a
number of acquisitions which have provided technology which is
currently used in our products (including Accrue G2) and a
number of divestitures which have raised cash. These
acquisitions and divestitures have also had an impact on our
financial statements which is summarized below.

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On September 30, 1999, we acquired
Marketwave Corporation, a provider of a web analytics solution
targeting customers with small volume websites. In connection
with this transaction, we acquired all of the outstanding shares
of capital stock of Marketwave in exchange for 2,880,475 shares
of our common stock, and assumed outstanding Marketwave options
that were subsequently exercised for 345,000 shares of our
common stock. The transaction was accounted for as a pooling of
interests in fiscal year 2000; therefore, our financial
statements have been restated for all periods prior to the
business combination to include the combined financial results
of Accrue and Marketwave.

On January 14, 2000, we acquired NeoVista
Software, Inc, a provider of retail data mining applications. In
connection with this transaction, we acquired all of the
outstanding shares of capital stock of NeoVista in exchange for
1,782,078 shares of our common stock. In addition, options of
NeoVista were converted into options to purchase approximately
550,000 shares of our common stock. The total purchase price was
approximately $127.9 million. We accounted for the
acquisition under the purchase method of accounting and the
results of operations of NeoVista have been included in the
consolidated financial statements from the date of acquisition.

On July 14, 2000, we acquired specific
assets of the InfoCharger division of Tantau Software
International, Inc. In exchange for the InfoCharger parallel
processing engine and related assets, Accrue issued 1,666,667
shares of its common stock in addition to a cash payment of
$5 million. The total purchase price was approximately
$59.2 million. The transaction was accounted for using the
purchase method of accounting and the results of operations of
InfoCharger have been included in the consolidated financial
statements from the date of acquisition.

On September 20, 2000, we acquired Aviator
Holding Corporation and its subsidiaries, including Pilot
Software, Inc., the provider of hybrid online analytical
processing (OLAP) technology. In connection with this
transaction, we acquired all of the outstanding shares of
capital stock of Aviator in exchange for 974,273 shares of our
common stock. The total purchase price was approximately
$29.5 million. We accounted for the acquisition under the
purchase method of accounting and the results of operations of
Pilot have been included in the consolidated financial
statements from the date of acquisition

In June 2001, we sold certain of our software
assets acquired as part of our acquisition of NeoVista to JDA
Software Group, Inc., for $4.9 million of cash. In
connection with this transaction, we retained license rights to
incorporate NeoVista software into Accrue products for
distribution in certain market segments.

During fiscal year 2002 and 2001, we performed an
impairment assessment of goodwill and identifiable intangible
assets recorded in connection with our acquisitions of NeoVista,
Pilot and certain intellectual property assets of Tantau and
recorded impairment charges of $1.2 million and
$139.7 million as described below in the discussion of
Results of Operations, respectively.

Subsequent to fiscal year 2002, in May 2002, we
sold the Pilot and HitList software assets, related intellectual
property, customer contracts and certain fixed assets to Pilot
Software Acquisition Corporation, an unrelated third party, for
$1.5 million of cash plus assumption of certain
liabilities. As a part of this transaction, we retained license
rights to incorporate the Pilot technology into our current and
future products. See Note 11 to the accompanying
consolidated financial statements for further details.

Source of Revenues

We generate revenue principally from licensing
our software solutions directly to customers and providing
related services including implementation, consulting, training
and support. We market our products, both domestically and
internationally, principally through our direct sales force.
Sales derived through indirect channels, which consist primarily
of international resellers and system integrators, accounted for
approximately 15% of our total revenue for fiscal year 2002. We
expect to rely on indirect sales channels in the international
market to a much greater extent in the future to increase
revenue.

We license our products to our customers
primarily on a perpetual basis. Our pricing model for
Accrue G2 is based on the number of server-based CPUs. This
allows for additional revenue as a customers e-business
expands. License fees for Accrue G2 have typically ranged
from $50,000 to several hundred

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thousand dollars. Customers can subsequently pay
additional license fees to expand the right to use previously
licensed software solutions, or to purchase additional software
solutions.


Annual support and maintenance contracts, which
are purchased with initial product licenses, entitle customers
to telephone support and upgrades, when and if available. The
price for our support and maintenance program is based on a
percentage of list price, is paid in advance and is
non-refundable. Revenue from maintenance agreements is included
in services revenue in the accompanying consolidated statements
of operations.

We also provide consulting, implementation and
training services to our customers separately from our sales of
product licenses. Such services typically include evaluating
their business needs, identifying the data sources necessary to
meet these needs and installing the software solution in a
manner that fulfills their requirements. Consulting and
implementation services can be acquired on either a fixed fee or
a time and expense basis. Revenue from consulting,
implementation and training services is included in services
revenue in the accompanying consolidated statements of
operations. We have also historically supplemented the capacity
of our internal professional services organization by
subcontracting some of these services to third-party consulting
organizations.

Cost of Revenue and Operating
Expenses

Our cost of license revenue primarily consists of
license fees due to third parties for integrated technology. Our
cost of services revenue include salaries and related expenses
for our implementation, consulting, support and training
organizations, costs of subcontracting to consulting
organizations to provide consulting services to customers and an
allocation of facilities, communications and depreciation
expenses.

Our operating expenses are classified into three
general categories: sales and marketing, research and
development, and general and administrative. We classify all
charges to these operating expense categories based on the
nature of the expenditures. We allocate the costs for overhead
and facilities to each of the functional areas that use the
overhead and facilities services based on their headcount. These
allocated charges include facility rent for corporate offices,
communication charges and depreciation expenses for office
furniture and equipment.

Software development costs incurred prior to the
establishment of technological feasibility are included in
research and development costs as incurred. Since license
revenue from our software solutions are not recognized until
after technological feasibility has been established, software
development costs are not generally expensed in the same period
in which license revenue for the developed products is
recognized.

We establish our expenditure levels for product
development, sales and marketing and other operating expenses
based, in large part, on our expected future revenue. Our
expectations regarding future revenue may not be accurate. As a
result, if revenue falls below expectations, our operating
results are likely to be adversely and disproportionately
affected because only small portions of our expenses vary with
revenue. Due to these factors, our operating results are
difficult to forecast. We believe that period-to-period
comparisons of our historical operating results are not
meaningful and should not be relied upon as an indication of
future performance.

Critical Accounting Policies

Our discussion and analysis of our financial
condition and results of operations are based upon our
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial
statements requires that we make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and
liabilities. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different

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assumptions or conditions. We believe the
following critical accounting policies affect our more
significant judgments and estimates used in the preparation of
our consolidated financial statements.




| |                    
| | -------------------
| | Revenue recognition

We recognize license revenues when a signed
contract or other persuasive evidence of an arrangement exists,
the software has been shipped or electronically delivered, the
license fee is fixed or determinable and collection of resulting
receivables is probable. The determination regarding the
probability of collection is based on managements
judgment. For contracts with multiple elements
(e.g. products, maintenance, installation and other
services), revenue is allocated to delivered components,
normally the license component, of the arrangement using the
residual value method based on objective evidence of the fair
value of the undelivered elements, which is specific to Accrue.
Accrue recognizes revenue allocated to undelivered products when
the criteria for product revenue set forth above are met. If
changes in conditions cause management to determine that these
criteria are not met for certain future transactions, revenue
recognized for any reporting period could be adversely affected.

We derive a significant portion of our revenue
from either fixed price contracts for professional services that
require the accurate estimation of the cost, scope and duration
of each engagement, or multiple element arrangements that tie
the recognition of licenses to such implementation services. For
contracts involving significant implementation, customization or
services that are essential to the functionality of the
software, both the product license revenues and service revenues
are recognized in accordance with the provisions of Statement of
Position (SOP) No. 81-1, Accounting for
Performance of Construction Type and Certain Production Type
Contracts. When reliable estimates are available for the
costs and efforts necessary to complete the implementation
services, we account for the arrangements under the percentage
of completion contract method pursuant to SOP No. 81-1.
When such estimates are not available, the completed contract
method is utilized. Labor hours incurred are used as the measure
of progress towards completion with revision of estimates
reflected in the period in which changes become known. If we do
not accurately estimate the resources required or the scope of
work to be performed, or do not manage our projects properly
within the planned periods of time or satisfy our obligations
under the contracts, then future consulting margins may be
significantly and negatively affected or losses on existing
contracts may need to be recognized. Any such resulting
reductions in margins or contract losses could be material to
our results of operations.

Maintenance and service revenue depends on the
continued ability of our customers to pay over time, and on
customers renewing contracts for software maintenance. If the
creditworthiness of our customers deteriorates, particularly
customers that are dependent on revenues from e-commerce, we may
not be able to sustain our historic levels of maintenance and
service revenues in the future.



| |                                                      
| | -----------------------------------------------------
| | Allowance for doubtful accounts and sales
    returns

We generally do not allow product returns;
however, in the past, upon request by a customer and approval of
management, certain returns have been allowed. Therefore,
provision for estimated product returns are recorded at the time
the products are shipped. We maintain allowances for doubtful
accounts for estimated losses resulting from the inability of
our customers to make required payments. If the financial
condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional
allowances may be required. We evaluate our accounts receivable
at each period end for amounts that we believe are no longer
collectible. This evaluation is largely done based on comments
received from the customer and/or our sales personnel, a review
of financial condition via credit agencies and our historical
experience with the customer. An unexpected filing of a
bankruptcy petition by a customer may impact our evaluation of
accounts receivable in any given period. However, this risk is
mitigated by the fact that our accounts receivable is dispersed
among a large number of customers. As of March 30, 2002,
two customers individually accounted for more than 10% of our
accounts receivable, at 16% and 17%, respectively. We believe
that these customers are of good credit standing.

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| |                                   
| | ----------------------------------
| | Goodwill and intangible
    assets

We have a material amount of intangible assets
related to acquired intangibles. In assessing the recoverability
of our intangibles, we must make assumptions regarding estimated
future cash flows and other factors to determine the fair value
of the respective assets. If these estimates or their related
assumptions change in the future, we may be required to record
impairment charges for these assets not previously recorded. The
determination of related estimated useful lives and whether or
not these assets are impaired involves significant judgment.
Changes in strategy and/or market conditions could significantly
impact these judgments and require adjustments to recorded asset
balances.

During the years ended March 31, 2001 and
March 30, 2002, we recorded an impairment charge of
$139.7 million related to goodwill and other intangibles
and an impairment charge of $1.2 million related to
intangible assets, respectively.



| |                     
| | --------------------
| | Legal Contingencies.

We are currently involved in certain legal
proceedings. Because of the uncertainties related to both the
amount and range of loss on the remaining pending litigation,
management is unable to make a reasonable estimate of the
liability that could result from an unfavorable outcome. As
discussed in Note 5 to the accompanying consolidated
financial statements, as of March 30, 2002, we have not
accrued any costs for the resolution of these claims. Our
assessment has been developed in consultation with outside
counsel handling our defense in these matters and is based upon
an analysis of potential results, assuming a combination of
litigation and settlement strategies. There can be no assurance
that the legal contingencies will be resolved without costly
litigation, or in a manner that is not materially adverse to our
financial position, results of operations or cash flows. As
additional information becomes available, we will assess the
potential liability related to our pending litigation and revise
our estimates. Such revisions in our estimates of the potential
liability could materially impact our results of operation and
financial position.

Recently Issued Accounting
Pronouncements

In June 1998, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging
Activities, which establishes accounting and reporting
standards for derivative instruments and hedging activities. It
requires an entity to recognize all derivatives as either assets
or liabilities in the balance sheet and measure those
instruments at fair value. We adopted SFAS No. 133 (as
amended by SFAS No. 138) as required by SFAS No. 137,
Deferral of the Effective Date the FASB Statement
No. 133, effective April 1, 2001. To date, we
have not engaged in derivative and hedging activities, and
accordingly the adoption of SFAS No. 133 did not have a
material effect on our financial position or results of
operations.

In June 2001, the FASB issued SFAS No. 141,
Business Combinations. SFAS No. 141 requires
the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the
pooling-of-interests method.

In June 2001, the FASB issued SFAS No. 142,
Goodwill and Other Intangible Assets, which is
effective for fiscal years beginning after March 15, 2002.
SFAS No. 142 requires, among other things, the
discontinuance of goodwill amortization. In addition, the
standard includes provisions upon adoption for the
reclassification of certain existing recognized intangibles as
goodwill, reassessment of the useful lives of existing
recognized intangibles, reclassification of certain intangibles
out of previously reported goodwill and the testing for
impairment of existing goodwill and other intangibles. We plan
to adopt SFAS No. 142 in the first quarter of fiscal year
2003. We are currently assessing the potential impact of SFAS
No. 142 and do not expect the adoption to have a material
impact on our financial position or results of operations.

In August 2001, the FASB issued SFAS No. 144
Accounting for the Impairment or Disposal of Long-Lived
Assets, which is effective for fiscal years beginning
after December 15, 2001 and interim periods within those
fiscal periods. SFAS No. 144 supersedes FASB Statement
No. 121 and APB 30, however, SFAS No. 144 retains
the requirement of Opinion 30 to report discontinued
operations separately from continuing

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operations and extends that reporting to a
component of an entity that either has been disposed of (by
sale, by abandonment, or in a distribution to owners) or is
classified as held for sale. SFAS No. 144 addresses
financial accounting and reporting for the impairment of certain
long-lived assets and for long-lived assets to be disposed of.
We plan to adopt SFAS No. 144 in the first quarter of
fiscal year 2003, and do not expect the adoption to have a
material impact on our financial position and results of
operations


In November 2001, the Emerging Issues Task Force
(EITF) reached a consensus on EITF Issue
No. 01-09, Accounting for Consideration Given by a
Vendor to a Customer or a Reseller of the Vendors
Products, which is a codification of EITF Issue
No. 00-14, 00-22 and 00-25. This issue presumes that
consideration from a vendor to a customer or reseller of the
vendors products to be a reduction of the selling prices
of the vendors products and, therefore, should be
characterized as a reduction of revenues when recognized in the
vendors income statement and could lead to negative
revenues under certain circumstances. Revenue reduction is
required unless consideration relates to a separate identifiable
benefit and the benefits fair value can be established. We
implemented EITF Issue No. 01-09 in the quarter ended
March 30, 2002 and the adoption did not impact our
financial position or results of operations.

In November 2001, the FASB discussed Topic D-103,
recharacterized as EITF Issue No. 01-14, Income
Statement Characterization of Reimbursements Received for
Out-of-Pocket Expenses Incurred. This issue
deals with classification in the income statement of incidental
expenses, that in practice are commonly referred to as
out-of-pocket expenses, incurred by entities that
provide services as part of their central ongoing operations.
The Task Force reached a consensus that reimbursements received
for out-of-pocket expenses incurred should be characterized as
revenue in the income statement. This issue is effective for
fiscal years beginning after December 15, 2001. There were
no material out of pocket expenses that required
reclassification on the implementation of EITF No. 01-14 in
the last quarter of fiscal year 2002.

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Results of Operations

The following tables set forth our historical
operating information, as well as the information as a
percentage of our total revenue represented by each item, for
the periods indicated:

|                                                                   |                                              |                                       |         |           |  |           |          |         |  |   |         |        |  
|------------------------------------------------------------------ | -------------------------------------------- | ------------------------------------- | ------- | --------- |  | --------- | -------- | ------- |  | - | ------- | ------ | -
|                                                                   |                                              |                                      
|                                                                   |                                              | Years Ended                          
|                                                                   |                                              |                                      
|                                                                   |                                              | March 31,                             |         | March 31, |  | March 30,
|                                                                   |                                              | 2000                                  |         | 2001      |  | 2002     
|                                                                   |                                              |                                       |         |           |  |          
|                                                                   |                                              |                                      
|                                                                   |                                              | (in thousands, except as a percentage
|                                                                   |                                              | of total revenue)                    
|Statement of Operations Data:                                      |                                              |                                       |         |           |  |           |          |         |  |   |         |       
|Net revenue:                                                       |                                              |                                       |         |           |  |           |          |         |  |   |         |       
|                                                                   | Software license                             |                                       | $       | 14,681    |  |           | $        | 14,592  |  |   | $       | 4,297  |  
|                                                                   | Maintenance and service                      |                                       |         | 4,183     |  |           |          | 11,042  |  |   |         | 10,011 |  
|                                                                   |                                              |                                       |         |           |  |           |          |         |  |   |         |       
|                                                                   |                                              |                                       | 18,864  |           |  |           | 25,634   |         |  |   | 14,308  |       
|                                                                   |                                              |                                       |         |           |  |           |          |         |  |   |         |       
|Cost of revenue:                                                   |                                              |                                       |         |           |  |           |          |         |  |   |         |       
|                                                                   | Software license                             |                                       |         | 602       |  |           |          | 871     |  |   |         | 300    |  
|                                                                   | Maintenance and service                      |                                       |         | 2,166     |  |           |          | 8,043   |  |   |         | 6,605  |  
|                                                                   |                                              |                                       |         |           |  |           |          |         |  |   |         |       
|                                                                   |                                              |                                       | 2,768   |           |  |           | 8,914    |         |  |   | 6,905   |       
|                                                                   |                                              |                                       |         |           |  |           |          |         |  |   |         |       
|Gross profit                                                       |                                              |                                       | 16,096  |           |  |           | 16,720   |         |  |   | 7,403   |       
|                                                                   |                                              |                                       |         |           |  |           |          |         |  |   |         |       
|Operating expenses:                                                |                                              |                                       |         |           |  |           |          |         |  |   |         |       
|                                                                   | Research and development                     |                                       |         | 4,410     |  |           |          | 9,454   |  |   |         | 6,915  |  
|                                                                   | Sales and marketing                          |                                       |         | 12,106    |  |           |          | 14,193  |  |   |         | 6,267  |  
|                                                                   | General and administrative                   |                                       |         | 2,437     |  |           |          | 9,569   |  |   |         | 5,371  |  
|                                                                   | Merger costs                                 |                                       |         | 3,560     |  |           |          |        |  |   |         |       |  
|                                                                   | In-process research and development          |                                       |         | 650       |  |           |          | 4,503   |  |   |         |       |  
|                                                                   | Amortization of intangibles                  |                                       |         | 10,859    |  |           |          | 49,559  |  |   |         | 4,580  |  
|                                                                   | Impairment of goodwill and other intangibles |                                       |         |          |  |           |          | 139,665 |  |   |         | 1,200  |  
|                                                                   | Stock-based compensation expense             |                                       |         | 4,344     |  |           |          | 2,190   |  |   |         | (276   | )
|                                                                   |                                              |                                       |         |           |  |           |          |         |  |   |         |       
|                                                                   |                                              |                                       | 38,366  |           |  |           | 229,133  |         |  |   | 24,057  |       
|                                                                   |                                              |                                       |         |           |  |           |          |         |  |   |         |       
|Loss from operations                                               |                                              |                                       | (22,270 | )         |  |           | (212,413 | )       |  |   | (16,654 | )     
|Other income (expense), net                                        |                                              |                                       | 1,151   |           |  |           | 1,194    |         |  |   | 241     |       
|Gain on sale of a technology asset                                 |                                              |                                       |        |           |  |           |         |         |  |   | 4,306   |       
|                                                                   |                                              |                                       |         |           |  |           |          |         |  |   |         |       
|Net loss                                                           |                                              | $                                     | (21,119 | )         |  | $         | (211,219 | )       |  | $ | (12,107 | )     
|                                                                   |                                              |                                       |         |           |  |           |          |         |  |   |         |       
|Net loss per share, basic and diluted                              |                                              | $                                     | (1.33   | )         |  | $         | (7.55    | )       |  | $ | (0.41   | )     
|                                                                   |                                              |                                       |         |           |  |           |          |         |  |   |         |       
|Shares used in computing net loss per share,
    basic and diluted |                                              |                                       | 15,822  |           |  |           | 27,958   |         |  |   | 29,820  |       
|                                                                   |                                              |                                       |         |           |  |           |          |         |  |   |         |       

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##### Table of Contents



|                                   |                                              |                                       |        |           |   |           |        |       |   |  |        |      |  
|---------------------------------- | -------------------------------------------- | ------------------------------------- | ------ | --------- | - | --------- | ------ | ----- | - |  | ------ | ---- | -
|                                   |                                              |                                      
|                                   |                                              | Years Ended                          
|                                   |                                              |                                      
|                                   |                                              | March 31,                             |        | March 31, |   | March 30,
|                                   |                                              | 2000                                  |        | 2001      |   | 2002     
|                                   |                                              |                                       |        |           |   |          
|                                   |                                              |                                      
|                                   |                                              | (in thousands, except as a percentage
|                                   |                                              | of total revenue)                    
|As a percentage of total revenue   |                                              |                                       |        |           |   |           |        |       |   |  |        |     
|Net revenue:                       |                                              |                                       |        |           |   |           |        |       |   |  |        |     
|                                   | Software license                             |                                       |        | 77.8      | % |           |        | 56.9  | % |  |        | 30.0 | %
|                                   | Maintenance and service                      |                                       |        | 22.2      |   |           |        | 43.1  |   |  |        | 70.0 |  
|                                   |                                              |                                       |        |           |   |           |        |       |   |  |        |     
|                                   |                                              |                                       | 100.0  |           |   |           | 100.0  |       |   |  | 100.0  |     
|                                   |                                              |                                       |        |           |   |           |        |       |   |  |        |     
|Cost of revenue:                   |                                              |                                       |        |           |   |           |        |       |   |  |        |     
|                                   | Software license                             |                                       |        | 3.2       |   |           |        | 3.4   |   |  |        | 2.1  |  
|                                   | Maintenance and service                      |                                       |        | 11.5      |   |           |        | 31.4  |   |  |        | 46.2 |  
|                                   |                                              |                                       |        |           |   |           |        |       |   |  |        |     
|                                   |                                              |                                       | 14.7   |           |   |           | 34.8   |       |   |  | 48.3   |     
|                                   |                                              |                                       |        |           |   |           |        |       |   |  |        |     
|Gross profit                       |                                              |                                       | 85.3   |           |   |           | 65.2   |       |   |  | 51.7   |     
|                                   |                                              |                                       |        |           |   |           |        |       |   |  |        |     
|Operating expenses:                |                                              |                                       |        |           |   |           |        |       |   |  |        |     
|                                   | Research and development                     |                                       |        | 23.4      |   |           |        | 36.9  |   |  |        | 48.3 |  
|                                   | Sales and marketing                          |                                       |        | 64.2      |   |           |        | 55.4  |   |  |        | 43.8 |  
|                                   | General and administrative                   |                                       |        | 12.9      |   |           |        | 37.3  |   |  |        | 37.5 |  
|                                   | Merger costs                                 |                                       |        | 18.9      |   |           |        |      |   |  |        |     |  
|                                   | In-process research and development          |                                       |        | 3.4       |   |           |        | 17.6  |   |  |        |     |  
|                                   | Amortization of intangibles                  |                                       |        | 57.6      |   |           |        | 193.3 |   |  |        | 32.0 |  
|                                   | Impairment of goodwill and other intangibles |                                       |        |          |   |           |        | 544.8 |   |  |        | 8.4  |  
|                                   | Stock-based compensation expense             |                                       |        | 23.0      |   |           |        | 8.5   |   |  |        | (1.9 | )
|                                   |                                              |                                       |        |           |   |           |        |       |   |  |        |     
|                                   |                                              |                                       | 203.4  |           |   |           | 893.9  |       |   |  | 168.1  |     
|                                   |                                              |                                       |        |           |   |           |        |       |   |  |        |     
|Loss from operations               |                                              |                                       | (118.1 | )         |   |           | (828.6 | )     |   |  | (116.4 | )   
|Other income (expense), net        |                                              |                                       | 6.1    |           |   |           | 4.7    |       |   |  | 1.7    |     
|Gain on sale of a technology asset |                                              |                                       |       |           |   |           |       |       |   |  | 30.1   |     
|                                   |                                              |                                       |        |           |   |           |        |       |   |  |        |     
|Net loss                           |                                              |                                       | (112.0 | )%        |   |           | (823.9 | )%    |   |  | (84.6  | )%  
|                                   |                                              |                                       |        |           |   |           |        |       |   |  |        |     

24



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##### Table of Contents



SELECTED CONSOLIDATED QUARTERLY OPERATING
RESULTS

The following table sets forth quarterly
unaudited financial data for fiscal years 2001 and 2002 as well
as the percentage of our total revenues represented by each
item. This unaudited financial data has been prepared on the
same basis as the audited financial statements included in this
report and includes all adjustments, consisting only of normal
recurring accruals that are considered necessary for a fair
presentation of such information when read in conjunction with
our audited financial statements and notes thereto appearing
elsewhere in this report. You should not draw any conclusions
from the operating results for any quarter.

Unaudited Results of Operations

Quarter Ended:


|                                             |                       |                                              |                          |         |       |        |         |        |        |         |          |         |       |         |         |        |       |        |        |       |       |       |        |       |       |       |        |       |       |       |        |       |       |       | 
|-------------------------------------------- | --------------------- | -------------------------------------------- | ------------------------ | ------- | ----- | ------ | ------- | ------ | ------ | ------- | -------- | ------- | ----- | ------- | ------- | ------ | ----- | ------ | ------ | ----- | ----- | ----- | ------ | ----- | ----- | ----- | ------ | ----- | ----- | ----- | ------ | ----- | ----- | ----- | 
|                                             |                       | June 30                                      |                          | Sept 30 |       | Dec 30 |         | Mar 31 |        | June 30 |          | Sept 29 |       | Dec 29  |         | Mar 30
|                                             |                       | 2000                                         |                          | 2000    |       | 2001   |         | 2001   |        | 2001    |          | 2001    |       | 2001    |         | 2002  
|                                             |                       |                                              |                          |         |       |        |         |        |        |         |          |         |       |         |         |       
|                                             |                       |                                             
|                                             |                       | (amounts in thousands except per share data)
|Net revenue:                                 |                       |                                              |                          |         |       |        |         |        |        |         |          |         |       |         |         |        |       |        |        |       |       |       |        |       |       |       |        |       |       |       |        |      
|                                             | Software license      |                                              | $                        | 6,923   |       |        | $       | 6,727  |        |         | $        | 462     |       |         | $       | 480    |       |        | $      | 1,147 |       |       | $      | 1,434 |       |       | $      | 976   |       |       | $      | 740   |      
|                                             | Maintenance & service |                                              |                          | 2,827   |       |        |         | 3,308  |        |         |          | 2,038   |       |         |         | 2,869  |       |        |        | 2,465 |       |       |        | 2,376 |       |       |        | 2,885 |       |       |        | 2,285 |      
|                                             |                       |                                              |                          |         |       |        |         |        |        |         |          |         |       |         |         |        |       |        |        |       |       |       |        |       |       |       |        |       |       |       |        |      
|                                             |                       | Total net revenue                            |                          |         | 9,750 |        |         |        | 10,035 |         |          |         | 2,500 |         |         |        | 3,349 |        |        |       | 3,612 |       |        |       | 3,810 |       |        |       | 3,861 |       |        |       | 3,025 |      
|                                             |                       |                                              |                          |         |       |        |         |        |        |         |          |         |       |         |         |        |       |        |        |       |       |       |        |       |       |       |        |       |       |       |        |      
|Cost of revenue:                             |                       |                                              |                          |         |       |        |         |        |        |         |          |         |       |         |         |        |       |        |        |       |       |       |        |       |       |       |        |       |       |       |        |      
|                                             | Software license      |                                              |                          | 381     |       |        |         | 108    |        |         |          | 162     |       |         |         | 220    |       |        |        | 105   |       |       |        | 105   |       |       |        | 75    |       |       |        | 15    |      
|                                             | Maintenance & service |                                              |                          | 1,439   |       |        |         | 1,755  |        |         |          | 2,381   |       |         |         | 2,468  |       |        |        | 2,128 |       |       |        | 1,714 |       |       |        | 1,396 |       |       |        | 1,367 |      
|                                             |                       |                                              |                          |         |       |        |         |        |        |         |          |         |       |         |         |        |       |        |        |       |       |       |        |       |       |       |        |       |       |       |        |      
|                                             |                       |                                              | Total cost of revenue    |         |       | 1,820  |         |        |        | 1,863   |          |         |       | 2,543   |         |        |       | 2,688  |        |       |       | 2,233 |        |       |       | 1,819 |        |       |       | 1,471 |        |       |       | 1,382 | 
|                                             |                       |                                              |                          |         |       |        |         |        |        |         |          |         |       |         |         |        |       |        |        |       |       |       |        |       |       |       |        |       |       |       |        |      
|Gross profit                                 |                       |                                              | 7,930                    |         |       |        | 8,172   |        |        |         | (43      | )       |       |         | 661     |        |       |        | 1,379  |       |       |       | 1,991  |       |       |       | 2,390  |       |       |       | 1,643  |      
|                                             |                       |                                              |                          |         |       |        |         |        |        |         |          |         |       |         |         |        |       |        |        |       |       |       |        |       |       |       |        |       |       |       |        |      
|Operating expenses:                          |                       |                                              |                          |         |       |        |         |        |        |         |          |         |       |         |         |        |       |        |        |       |       |       |        |       |       |       |        |       |       |       |        |      
|Research & development                       |                       |                                              | 1,936                    |         |       |        | 2,059   |        |        |         | 2,697    |         |       |         | 2,762   |        |       |        | 2,122  |       |       |       | 1,730  |       |       |       | 1,628  |       |       |       | 1,435  |      
|Sales & marketing                            |                       |                                              | 4,149                    |         |       |        | 3,488   |        |        |         | 3,553    |         |       |         | 3,003   |        |       |        | 1,489  |       |       |       | 1,606  |       |       |       | 1,558  |       |       |       | 1,614  |      
|General & administrative                     |                       |                                              | 904                      |         |       |        | 1,142   |        |        |         | 1,974    |         |       |         | 5,549   |        |       |        | 1,323  |       |       |       | 1,465  |       |       |       | 1,281  |       |       |       | 1,302  |      
|Amortization of intangible assets            |                       |                                              | 10,859                   |         |       |        | 16,244  |        |        |         | 17,652   |         |       |         | 4,804   |        |       |        | 1,145  |       |       |       | 1,145  |       |       |       | 1,145  |       |       |       | 1,145  |      
|In-process research & development            |                       |                                              |                         |         |       |        | 4,503   |        |        |         |         |         |       |         |        |        |       |        |       |       |       |       |       |       |       |       |       |       |       |       |       |      
|Impairment of goodwill and other intangibles |                       |                                              |                         |         |       |        |        |        |        |         | 110,000  |         |       |         | 29,665  |        |       |        |       |       |       |       |       |       |       |       |       |       |       |       | 1,200  |      
|Stock-based compensation expense             |                       |                                              | 749                      |         |       |        | 598     |        |        |         | 423      |         |       |         | 420     |        |       |        | 209    |       |       |       | 276    |       |       |       | (772   | )     |       |       | 11     |      
|                                             |                       |                                              |                          |         |       |        |         |        |        |         |          |         |       |         |         |        |       |        |        |       |       |       |        |       |       |       |        |       |       |       |        |      
|                                             |                       |                                              | Total operating expenses |         |       | 18,597 |         |        |        | 28,034  |          |         |       | 136,299 |         |        |       | 46,203 |        |       |       | 6,288 |        |       |       | 6,222 |        |       |       | 4,840 |        |       |       | 6,707 | 
|                                             |                       |                                              |                          |         |       |        |         |        |        |         |          |         |       |         |         |        |       |        |        |       |       |       |        |       |       |       |        |       |       |       |        |      
|Loss from operations                         |                       |                                              | (10,667                  | )       |       |        | (19,862 | )      |        |         | 136,342  |         |       |         | (45,542 | )      |       |        | (4,909 | )     |       |       | (4,231 | )     |       |       | (2,450 | )     |       |       | (5,064 | )    
|Other income (expense)                       |                       |                                              | 405                      |         |       |        | 345     |        |        |         | 243      |         |       |         | 201     |        |       |        | 134    |       |       |       | 77     |       |       |       | 16     |       |       |       | 14     |      
|Gain on sale of technology asset             |                       |                                              |                         |         |       |        |        |        |        |         |         |         |       |         |        |        |       |        | 4,306  |       |       |       |       |       |       |       |       |       |       |       |       |      
|                                             |                       |                                              |                          |         |       |        |         |        |        |         |          |         |       |         |         |        |       |        |        |       |       |       |        |       |       |       |        |       |       |       |        |      
|Net loss                                     |                       | $                                            | (10,262                  | )       |       | $      | (19,517 | )      |        | $       | (136,099 | )       |       | $       | (45,341 | )      |       | $      | (469   | )     |       | $     | (4,154 | )     |       | $     | (2,434 | )     |       | $     | (5,050 | )    
|                                             |                       |                                              |                          |         |       |        |         |        |        |         |          |         |       |         |         |        |       |        |        |       |       |       |        |       |       |       |        |       |       |       |        |      
|Basic and diluted net loss per share         |                       | $                                            | (0.40                    | )       |       | $      | (0.72   | )      |        | $       | (4.95    | )       |       | $       | (1.48   | )      |       | $      | (0.02  | )     |       | $     | (0.14  | )     |       | $     | (0.08  | )     |       | $     | (0.17  | )    
|                                             |                       |                                              |                          |         |       |        |         |        |        |         |          |         |       |         |         |        |       |        |        |       |       |       |        |       |       |       |        |       |       |       |        |      

25



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##### Table of Contents



Percentage of Total Revenues*

(Unaudited)


Quarter Ending


|                                             |                          |                       |      |           |     |          |      |          |     |          |        |           |     |          |        |          |     |  |      |    |     |  |      |    |     |  |     |    |     |  |      |    |     | 
|-------------------------------------------- | ------------------------ | --------------------- | ---- | --------- | --- | -------- | ---- | -------- | --- | -------- | ------ | --------- | --- | -------- | ------ | -------- | --- |  | ---- | -- | --- |  | ---- | -- | --- |  | --- | -- | --- |  | ---- | -- | --- | 
|                                             |                          | June 30,              |      | Sept. 30, |     | Dec. 30, |      | Mar. 31, |     | June 30, |        | Sept. 29, |     | Dec. 29, |        | Mar. 30,
|                                             |                          | 2000                  |      | 2000      |     | 2001     |      | 2001     |     | 2001     |        | 2001      |     | 2001     |        | 2002    
|                                             |                          |                       |      |           |     |          |      |          |     |          |        |           |     |          |        |         
|Net revenue:                                 |                          |                       |      |           |     |          |      |          |     |          |        |           |     |          |        |          |     |  |      |    |     |  |      |    |     |  |     |    |     |  |      |   
|                                             | Software license         |                       |      | 71        | %   |          |      | 67       | %   |          |        | 18        | %   |          |        | 14       | %   |  |      | 32 | %   |  |      | 38 | %   |  |     | 25 | %   |  |      | 24 | %  
|                                             | Maintenance & service    |                       |      | 29        |     |          |      | 33       |     |          |        | 82        |     |          |        | 86       |     |  |      | 68 |     |  |      | 62 |     |  |     | 75 |     |  |      | 76 |    
|                                             |                          |                       |      |           |     |          |      |          |     |          |        |           |     |          |        |          |     |  |      |    |     |  |      |    |     |  |     |    |     |  |      |   
|                                             |                          | Total net revenue     |      |           | 100 |          |      |          | 100 |          |        |           | 100 |          |        |          | 100 |  |      |    | 100 |  |      |    | 100 |  |     |    | 100 |  |      |    | 100 | 
|                                             |                          |                       |      |           |     |          |      |          |     |          |        |           |     |          |        |          |     |  |      |    |     |  |      |    |     |  |     |    |     |  |      |   
|Cost of revenue:                             |                          |                       |      |           |     |          |      |          |     |          |        |           |     |          |        |          |     |  |      |    |     |  |      |    |     |  |     |    |     |  |      |   
|                                             | Software license         |                       |      | 4         |     |          |      | 1        |     |          |        | 6         |     |          |        | 7        |     |  |      | 3  |     |  |      | 3  |     |  |     | 2  |     |  |      | 1  |    
|                                             | Maintenance & service    |                       |      | 15        |     |          |      | 17       |     |          |        | 95        |     |          |        | 74       |     |  |      | 59 |     |  |      | 45 |     |  |     | 36 |     |  |      | 45 |    
|                                             |                          |                       |      |           |     |          |      |          |     |          |        |           |     |          |        |          |     |  |      |    |     |  |      |    |     |  |     |    |     |  |      |   
|                                             |                          | Total cost of revenue |      |           | 19  |          |      |          | 19  |          |        |           | 102 |          |        |          | 80  |  |      |    | 62  |  |      |    | 48  |  |     |    | 38  |  |      |    | 46  | 
|                                             |                          |                       |      |           |     |          |      |          |     |          |        |           |     |          |        |          |     |  |      |    |     |  |      |    |     |  |     |    |     |  |      |   
|Gross profit                                 |                          |                       | 81   |           |     |          | 81   |          |     |          | (2     | )         |     |          | 20     |          |     |  | 38   |    |     |  | 52   |    |     |  | 62  |    |     |  | 54   |   
|                                             |                          |                       |      |           |     |          |      |          |     |          |        |           |     |          |        |          |     |  |      |    |     |  |      |    |     |  |     |    |     |  |      |   
|Operating expenses:                          |                          |                       |      |           |     |          |      |          |     |          |        |           |     |          |        |          |     |  |      |    |     |  |      |    |     |  |     |    |     |  |      |   
|                                             | Research & development   |                       |      | 20        |     |          |      | 21       |     |          |        | 108       |     |          |        | 82       |     |  |      | 59 |     |  |      | 45 |     |  |     | 42 |     |  |      | 47 |    
|                                             | Sales & marketing        |                       |      | 43        |     |          |      | 35       |     |          |        | 142       |     |          |        | 90       |     |  |      | 41 |     |  |      | 42 |     |  |     | 40 |     |  |      | 53 |    
|                                             | General & administrative |                       |      | 9         |     |          |      | 11       |     |          |        | 79        |     |          |        | 166      |     |  |      | 37 |     |  |      | 38 |     |  |     | 33 |     |  |      | 43 |    
|Amortization of intangible                   |                          |                       | 111  |           |     |          | 162  |          |     |          | 706    |           |     |          | 143    |          |     |  | 32   |    |     |  | 30   |    |     |  | 30  |    |     |  | 38   |   
|In-process research & development            |                          |                       |     |           |     |          | 45   |          |     |          |       |           |     |          |       |          |     |  |     |    |     |  |     |    |     |  |    |    |     |  |     |   
|Impairment of goodwill and other intangibles |                          |                       |     |           |     |          |     |          |     |          | 4,400  |           |     |          | 886    |          |     |  |     |    |     |  |     |    |     |  |    |    |     |  | 40   |   
|Stock-based compensation expense             |                          |                       | 8    |           |     |          | 6    |          |     |          | 17     |           |     |          | 13     |          |     |  | 6    |    |     |  | 7    |    |     |  | (20 | )  |     |  |     |   
|                                             |                          |                       |      |           |     |          |      |          |     |          |        |           |     |          |        |          |     |  |      |    |     |  |      |    |     |  |     |    |     |  |      |   
|Total operating expenses                     |                          |                       | 191  |           |     |          | 279  |          |     |          | 5,452  |           |     |          | 1,380  |          |     |  | 174  |    |     |  | 163  |    |     |  | 125 |    |     |  | 222  |   
|                                             |                          |                       |      |           |     |          |      |          |     |          |        |           |     |          |        |          |     |  |      |    |     |  |      |    |     |  |     |    |     |  |      |   
|Loss from operations                         |                          |                       | (109 | )         |     |          | (198 | )        |     |          | (5,454 | )         |     |          | (1,360 | )        |     |  | (136 | )  |     |  | (111 | )  |     |  | (63 | )  |     |  | (167 | ) 
|Other income/(expense)                       |                          |                       | 4    |           |     |          | 3    |          |     |          | 10     |           |     |          | 6      |          |     |  | 4    |    |     |  | 2    |    |     |  |    |    |     |  | 1    |   
|Gain on sale of technology asset             |                          |                       |     |           |     |          |     |          |     |          |       |           |     |          |       |          |     |  | 119  |    |     |  |     |    |     |  |    |    |     |  |     |   
|                                             |                          |                       |      |           |     |          |      |          |     |          |        |           |     |          |        |          |     |  |      |    |     |  |      |    |     |  |     |    |     |  |      |   
|Net loss                                     |                          |                       | (105 | )%        |     |          | (194 | )%       |     |          | (5,444 | )%        |     |          | (1,354 | )%       |     |  | (13  | )% |     |  | (109 | )% |     |  | (63 | )% |     |  | (167 | )%
|                                             |                          |                       |      |           |     |          |      |          |     |          |        |           |     |          |        |          |     |  |      |    |     |  |      |    |     |  |     |    |     |  |      |   



---



|  |                                     
|- | ------------------------------------
|* | Totals may not foot due to rounding.

Fiscal Years Ended March 30, 2002 and
March 31, 2001

Revenue.Total
revenue decreased 44% from $25.6 million in fiscal year
2001 to $14.3 million in fiscal year 2002. The decrease in
revenue was primarily due to a decline in software license
revenue, particularly in the United States of America. For
fiscal year 2002, domestic revenue declined by
$11.8 million, or 58%, to $8.7 million from
$20.5 million in fiscal year 2001. This decrease was
partially offset by an increase in international revenue of
$0.5 million, or 9%, to $5.6 million in fiscal year
2002 as compared to $5.1 million in fiscal year 2001. No
single customer accounted for more than 10% of our revenue in
fiscal year 2001 or 2002.

Software license
revenue.Revenue from software
licenses declined $10.3 million, or 71% from
$14.6 million in fiscal year 2001 to $4.3 million in
fiscal year 2002. The decrease in software license revenue was
primarily due to the downturn in the economy and weakness in
information technology spending, particularly in the United
States of America. License revenue totaled 30% of net revenues
in fiscal year 2002, as compared to 57% in fiscal year 2001.

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Maintenance and service
revenue.Maintenance and service
revenue declined $1.0 million, or 9%, from
$11.0 million in fiscal year 2001 to $10.0 million in
fiscal year 2002. This decrease was primarily due to a
corresponding decline in license revenue as service revenue is
typically derived in connection with sales of our software
licenses. Maintenance and service revenues depend on the
continued ability of our customers to pay over time, and of
customers renewing contracts for software maintenance. If the
creditworthiness of our customers deteriorates, particularly
customers that are dependent on revenues from e-commerce, we may
not be able to sustain our historic levels of maintenance and
service revenues in the future.

Cost of revenue.Cost of revenue declined $2.0 million, or 23%, from
$8.9 million in fiscal year 2001 to $6.9 million in
fiscal year 2002. The decrease in the cost of revenue in fiscal
year 2002 was due to lower royalty costs, resulting from the
decline in software license revenue and a significant reduction
in maintenance and service costs, which resulted from the cost
reductions implemented during fiscal year 2002. Cost of revenue
as a percentage of net revenues increased from 35% of net
revenue in fiscal year 2001 to 48% in fiscal year 2002. This
increase was attributable to the significant decline in software
revenue in 2002, as compared to the prior year. Because all
development costs incurred in the research and development of
our software products and enhancements to our existing software
products have been expensed as incurred, cost of revenue
includes no amortization of capitalized software development
costs.

Gross profit.Gross
profit declined $9.3 million, or 56%, from
$16.7 million in fiscal year 2001 to $7.4 million in
fiscal year 2002. This decrease was primarily due to the
$10.3 million decline in software license revenue
previously noted. As a percentage of revenues, gross profit
margin declined from 65% in fiscal year 2001 to 52% in fiscal
year 2002. This decrease in gross profit margin was primarily
due to a lower volume of license revenue, which carries a higher
gross profit margin than service and maintenance revenue. The
proportion of services and maintenance revenue to total revenue
in any period depends on various factors which include: the
volume of new license revenue, the acquisition of maintenance
contracts from business acquisitions, and the renewal rate of
existing maintenance contracts. For these reasons, we expect
that our gross profit margin will continue to fluctuate in the
future.

Operating expenses.

Research and development expenses.Research and development expenses
consist primarily of salaries and related costs associated with
the development of new products, the enhancement of existing
products and the performance of quality assurance and
documentation activities. Research and development expenditures
are charged to operations as incurred. Research and development
expenses declined $2.6 million, or 27% from
$9.5 million in fiscal year 2001 to $6.9 million in
fiscal year 2002. This decrease was primarily attributable to
decreased staffing costs resulting from headcount reductions in
development personnel implemented during fiscal year 2002.
Research and development expenses as a percentage of net
revenues increased from 37% in fiscal year 2001 to 48% in fiscal
year 2002 due primarily to the decline in fiscal year 2002
revenues, as compared to the prior fiscal year.

Sales and marketing
expenses.Sales and marketing expenses
consist primarily of salaries, commissions and bonuses of sales
and marketing personnel, and promotional expenses. Sales and
marketing expenses declined $7.9 million, or 56%, from
$14.2 million in fiscal year 2001 to $6.3 million in
fiscal year 2002. As a percentage of net revenue, sales and
marketing expenses declined from 55% in fiscal year 2001 to 44%
in fiscal year 2002. These decreases were primarily due to lower
commission expenses of $1.5 million due to lower revenues,
lower salary costs of $1.7 million due to decreased
headcount, and reduced marketing expenditures of
$2.2 million, which resulted from expense reductions made
in response to the decline in net revenues recorded in fiscal
year 2002. We expect that sales and marketing expenses will
continue to vary as a percentage of total revenue.

General and administrative expenses.General and administrative expenses
consist primarily of salaries and other personnel-related costs
for executive, financial, human resource, information services,
and other administrative functions, as well as legal and
accounting costs and bad debt expense. General and
administrative expenses declined $4.2 million, or 44%, from
$9.6 million in fiscal year 2001 to $5.4 million in
fiscal year 2002. The majority of this decline was attributable
to the $3.8 million of bad debt expense recorded

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in fiscal year 2001 that was related to an
unusually large number of e-commerce and Internet customers who
went out of business or were unable to pay our invoices. As a
percentage of net revenue, general and administrative expenses
increased from 37% in fiscal year 2001 to 38% in fiscal year
2002. This increase was due principally to the lower level of
net revenue recorded in fiscal year 2002. We expect that general
and administrative expenses will continue to vary as a
percentage of total revenue.


In-process research and development.In connection with our corporate
acquisitions, in-process research and development represents the
associated costs of research and development projects that had
not yet reached technological feasibility and had no alternative
future uses at the date of the relevant acquisition. The value
of the purchased in-process research and development was
determined by estimating the projected net cash flows related to
the products, including costs to complete the development of the
technology and the future revenues to be earned upon
commercialization of the products. These cash flows were then
discounted back to their net present value. The projected net
cash flows from the projects were based on managements
estimates of revenues and operating profits related to the
projects. We recorded a one-time charge of $4.5 million in
fiscal year 2001 for in-process research and development
associated with our acquisitions of the InfoCharger division of
Tantau Software International, Inc. and Pilot Software, Inc.

Subsequent to acquisition, we compare actual
results with our assumptions at the time of acquisition as they
relate to the value of purchased in-process research and
development. The assumptions primarily consist of an expected
completion date for the in-process projects, estimated costs to
complete the projects and revenue and expense projections once
the products have entered the market. We shipped Accrue G2
in May 2001, which incorporated in-process research and
development from the InfoCharger and Pilot acquisitions. Revenue
from Accrue G2 in fiscal year 2002 was consistent with our
projections, in all material respects, however, the unexpected
duration of the weak economic conditions during fiscal year
2002, which have continued into fiscal year 2003, may negatively
impact our ability to generate the expected level of revenue and
net income from this product. Failure to achieve the expected
levels of revenue and net income from this product may
negatively impact the return on investment expected at the time
that the acquisition was made.

Amortization of intangibles.Amortization of goodwill and other
intangibles is associated with the amortization of the excess of
the purchase price over the fair value of the identifiable
tangible and intangible assets acquired. Intangible assets are
being amortized on a straight-line basis over a useful life of
three years. Amortization of goodwill and other intangibles was
$49.6 million and $4.6 million in fiscal year 2001 and
2002, respectively. The decrease in fiscal year 2002 is due to a
reduced value of identifiable intangible assets as a result of
the goodwill impairment charge incurred in fiscal year 2001.

Impairment of goodwill and other intangibles.During fiscal year 2002, we performed
impairment assessments of the intangible assets associated with
the Pilot acquisition, which are primarily comprised of
purchased software and technology. Our assessments were
performed as a result of the declining base of customers of the
Pilot products, which we believe was due to lack of product
feature enhancements relative to competitors products.
Based on our assessment, the book value of the intangible assets
associated with the developed and core technology exceeded the
estimated undiscounted cash flows of the Pilot products. As a
result of our review, we recorded a charge of $1.2 million
in fiscal year 2002 to reduce the intangible assets associated
with the Pilot acquisition to the estimated net realizable
value. The remaining identifiable intangible balance of
approximately $4.6 million, including $2.8 million
related to Pilot products, will be amortized over the remaining
term of the useful life of the assets established at time of the
acquisition, which we consider appropriate.

During fiscal year 2001, we performed impairment
assessments of the identifiable intangibles and enterprise level
goodwill recorded upon the acquisition for stock of NeoVista,
InfoCharger and Pilot, which we completed on January 14,
July 14 and September 20, 2000, respectively. Our
assessments were performed primarily as a result of the decline
in our revenues in the second half of the fiscal year 2001, the
anticipated decline in our projected operating results due to
the overall decline in the e-commerce industry and the
significant decline in our stock price since the date the shares
issued in each acquisition were valued. Goodwill exceeded our
market capitalization prior to the impairment charge. As a
result of our review, we recorded a charge of
$139.7 million in fiscal year 2001 to reduce our enterprise
level goodwill. The charge was determined

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based upon our estimated discounted cash flows
using a discount rate of 20%. The assumptions supporting our
cash flows including the discount rate were determined using our
best estimates.


Stock-based compensation.Stock-based compensation consists of
amortization of deferred compensation in connection with stock
option grants and sales of stock to employees at exercise or
sales prices below the deemed fair market value of our common
stock. In connection with the grant of certain stock options to
employees during the years prior to March 30, 2000, we
recorded deferred compensation of approximately
$9.9 million. No deferred compensation was recorded in
fiscal years 2001 or 2002 as the equity instruments granted in
this period were at their deemed fair market value. The deferred
compensation amount is being amortized over the respective
vesting periods of these equity instruments in a manner
consistent with Financial Accounting Standards Board
Interpretation No. 28. Total stock-based compensation was
$2.2 million and a credit of $0.3 million for the
years ended March 31, 2001 and March 30, 2002,
respectively. The credit in 2002 resulted from adjustment of
deferred compensation expense made in connection with employees
terminated during the year as a result of the Companys
expense reduction programs. The remaining balance of deferred
stock-based compensation as of March 30, 2002 of
$0.1 million will continue to be amortized over the
remaining vesting period of the related options. Such deferred
expense has been recorded as a reduction of equity in the
balance sheet.

In January 2002, we announced a voluntary stock
option exchange program for our employees. Under the program,
employees were given the opportunity to cancel outstanding stock
options previously granted with an exercise price greater than
$4.13 per share in exchange for a new stock option grant for an
equal number of shares to be granted at a future date, at least
six months and one day from the cancellation date of the
exchanged options, which will be after September 5, 2002.
Under the exchange program, options to purchase approximately
1.1 million shares of our common stock were tendered by 56
employees and 3 directors and cancelled. The new options
have terms and conditions that are substantially the same as
those of the cancelled options, except that the options will
vest over a three-year period commencing September 30,
2001. We believe the exchange program will not result in any
additional compensation charges or variable plan accounting.

Other income (expense), net.Other income (expense), net consists
of interest income, interest expense, other income, and other
expense. Other income (expense), net was down approximately
$1.0 million in fiscal year 2002 as compared to fiscal year
2001. This decline is primarily due to lower interest income
recognized in fiscal year 2002, due to the lower level of
invested cash balances in fiscal year 2002 as compared to fiscal
year 2001.

Gain on sale of technology asset.During fiscal year 2002, we sold
certain software and related intangible assets to JDA Software
Group, Inc. This transaction resulted in recognition of a gain
from sale of technology asset of $4.3 million in fiscal
year 2002.

Provision for Income Taxes.At March 30, 2002, Accrue has
federal and state net operating loss carryforwards of
approximately $102.0 million and $69.4 million,
respectively, available to offset future regular and alternative
minimum taxable income, if any. If not utilized, the federal net
operating loss carryforwards will begin to expire in 2011 and
the state net operating loss carryforwards have begun to expire
in 2001. Approximately $52.7 million and $10 million
of federal and state net operating loss carryforwards,
respectively, related to acquired entities have begun to expire
in 2002. In addition, Accrue has federal and state tax credits
of approximately $3.4 million and $2.4 million,
respectively, to offset future tax liabilities, if any. The
federal tax credits will begin to expire in 2017. Under the
provisions of the Internal Revenue Code, certain substantial
changes in our ownership occurring in the past or future may
limit the amount of net operating loss and tax credit carry
forwards that we could utilize annually to offset future taxable
income. We have recorded a valuation allowance for the full
amount of our net deferred tax assets, as the future realization
of the tax benefit is not currently likely.

Fiscal Years Ended March 31, 2001 and
March 31, 2000

Revenue.Total
revenue increased 36% from $18.9 million in fiscal year
2000 to $25.6 million in fiscal year 2001. Total revenue
increased for the first two quarters of 2001 as compared to the
first two quarters of

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2000. However, this increase was offset by a
decrease in revenue for the last two quarters of 2001 as
compared to the last two quarters of 2000. The decrease in
revenue was primarily due to a decline in purchases from
e-commerce companies and an increase in our product sales cycle
to enterprise customers, due in part to an economic slowdown and
the significant decline in spending by companies on information
technology, particularly in the Unites States of America. No
single customer accounted for more than 10% of our revenue in
fiscal year 2000.


Software license revenue.Revenue from software licenses
decreased $0.1 million, or 1%, from $14.7 million in
fiscal year 2000, as compared to $14.6 million in fiscal
year 2001. Total license revenue increased for the first two
quarters of 2001 as compared to the first two quarters of 2000.
However, this increase was offset by a decrease in revenue for
the last two quarters of 2001 as compared to the last two
quarters of 2000. The decrease in license revenue for fiscal
year 2001 was primarily due to lower than anticipated sales of
our products as a result of a decline in purchases from
e-commerce companies, an increase in our sales cycle to
enterprise customers, due in part to an economic slowdown and
the significant decline in spending by companies on information
technology, particularly in the Unites States of America.

Maintenance and service revenue.Maintenance and service revenue
increased $6.9 million, or 164%, from $4.2 million in
fiscal year 2000 to $11.0 million in fiscal year 2001.
Maintenance and service revenue comprised 22% of net revenue in
fiscal year 2000 and 43% of total revenue in fiscal year 2001.
The growth of maintenance and service revenue in fiscal year
2001, both in terms of dollars and relative to license revenue,
was primarily due to expanded service offerings and the
inclusion of maintenance revenue related to our acquisition of
Pilot Software, Inc. in September 2000.

Cost of revenue.Cost of revenue consists primarily of
the salaries and related expenses for maintenance and service
personnel. These costs were $2.8 million or 15% of net
revenue in fiscal year 2000, and $8.9 million, or 35%, of
revenue in fiscal year 2001, representing an increase
$6.1 million, or 222%, from fiscal year 2000 to fiscal year
2001. The increase in the cost of revenue reflects primarily a
substantial increase in maintenance and service personnel
headcount. Because all development costs incurred in the
research and development of our software products and
enhancements to our existing software products have been
expensed as incurred, cost of revenue includes no amortization
of capitalized software development costs.

Gross profit.Gross
profit increased $0.6 million, or 4%, from
$16.1 million in fiscal year 2000 to $16.7 million in
fiscal year 2001. This increase was due to the increase in
maintenance and service revenue previously noted. As a
percentage of revenue, gross profit margin declined from 85% in
fiscal year 2000 to 65% in fiscal year 2001. The decrease in
gross margin is primarily due to a higher volume of service and
maintenance revenue, which carries a lower gross profit margin
than license revenue.

Operating expenses.

Research and development expenses.Research and development expenses
consist primarily of salaries and related costs associated with
the development of new products, the enhancement of existing
products, and the performance of quality assurance and
documentation activities. Research and development expenses
increased $5.0 million, or 114%, from $4.4 million in
fiscal year 2000 to $9.5 million in fiscal year 2001. The
significant increase from fiscal year 2000 to fiscal year 2001
was primarily due to the expansion of the research and
development team as a result of internal growth and the fiscal
year 2001 acquisitions. Research and development expenses
increased from 23% of total revenue in fiscal year 2000 to 37%
of total revenue in fiscal year 2001. This increase in expenses
relative to revenues was due to the increase in development
resources applied to new product development, in particular,
Accrue G2.

Sales and marketing
expenses.Sales and marketing expenses
increased $2.1 million, or 17%, from $12.1 million in
fiscal year 2000 to $14.2 million in fiscal year 2001. This
increase was primarily due higher salary costs of
$0.8 million due to increased headcount and increased
marketing expenditures of $1.8 million, which resulted from
expected growth in revenues in fiscal year 2001. Sales and
marketing expenses as a percentage of total revenue decreased
from 64% in fiscal year 2000 to 55% in fiscal year 2001. This
decrease was attributable principally to an increase in revenue
primarily from maintenance contracts acquired in the Pilot
acquisition in September 2000.

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General and administrative
expenses.General and administrative
expenses increased $7.1 million, or 293%, from
$2.4 million in fiscal year 2000 to $9.6 million in
fiscal year 2001. A significant portion of the increase in
fiscal year 2001 was attributable to the $3.8 million of
bad debt expenses recorded in fiscal year 2001. The increase in
bad debt expenses was due primarily to provision recording on
past due accounts receivable for several e-commerce and Internet
customers. These customers either went out of business or
experienced a significant decline in their ability to pay their
obligations.

Merger costs.During
September 1999, we completed the acquisition of Marketwave
Corporation through the issuance of Accrue common stock. The
acquisition was accounted for using the pooling of interest
method. During January 2000, we completed the acquisition of
NeoVista Corporation through the issuance of Accrue common
stock. The acquisition was accounted for using the purchase
method. We incurred merger-related costs of $3.6 million in
fiscal year 2000. These nonrecurring expenses related to
transaction costs, employee termination costs, legal and
accounting costs, write-off of equipment and other assets, and
redundant facility and other costs.

In-process research and development.We recorded a one-time charge of
$0.7 million in fiscal year 2000 for in-process research
and development associated with our acquisition of NeoVista
Software, Inc. We recorded a one-time charge of
$4.5 million in fiscal year 2001 for in-process research
and development associated with our acquisitions of the
InfoCharger division of Tantau Software International, Inc. and
Pilot Software, Inc.

Amortization of intangibles.Amortization of goodwill and
intangibles were $10.9 million in fiscal year 2000 and
$49.6 million in fiscal year 2001. The increase in
amortization expense in fiscal year 2001 was due to the
completion of the NeoVista Software, Inc., acquisition in
January 2000, resulting in a full year of amortization expense
in fiscal year 2001, versus one quarters expense in fiscal
year 2000, and the InfoCharger and Pilot Software, Inc.
acquisitions in fiscal year 2001.

Goodwill impairment charge.We recorded a charge of
$139.7 million in fiscal year 2001 in connection with our
impairment assessments of the identifiable intangible assets in
respect of the NeoVista, InfoCharger and Pilot acquisitions,
which we completed on January 14, July 14, and
September 20, 2000, respectively.

Stock-based compensation.Stock-based compensation consists of
amortization of deferred compensation in connection with stock
option grants and sales of stock to employees at exercise or
sales prices below the deemed fair market value of our common
stock. In connection with the grant of certain stock options to
employees during the years ended March 31, 2000, we
recorded deferred compensation of approximately
$3.7 million. No deferred stock compensation expense was
recorded in the year ended March 31, 2001 as the equity
instruments granted in fiscal year 2001 were at their deemed
fair market value. The deferred stock-based compensation amount
is being amortized over the respective vesting periods of these
equity instruments in a manner consistent with Financial
Accounting Standards Board Interpretation No. 28. Total
stock-based compensation was $4.3 million and
$2.2 million for the years ended March 31, 2001 and
2000, respectively. As of March 31, 2001, deferred
compensation remaining to be amortized totaled
$1.0 million. Such deferred expense has been recorded as a
reduction of equity in the balance sheet.

Liquidity and Capital Resources

Since inception, we have financed our operations
principally through private sales of preferred stock with net
proceeds of $15.5 million, our initial public offering with
net proceeds of $40.8 million, bank loans and cash
generated from operations. We used cash primarily to fund our
net losses from operations and to pay for acquisition related
expenses.

Cash used in operating activities totaled
$9.2 million, $12.7 million and $13.8 million in
fiscal years 2000, 2001 and 2002, respectively. Cash used in
operating activities for each period resulted principally from
net losses and merger and acquisition costs in those periods,
net of non-cash charges for depreciation, amortization and
impairment of goodwill and other intangibles, write-off of
in-process research and development and stock based compensation.

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In fiscal year 2000, the $9.2 million of
cash used in operating activities was primarily attributable to
our net loss of $21.1 million, an increase in accounts
receivable of $4.3 million, an increase in prepaid expenses
and other assets of $1.4 million and a decrease in accrued
merger costs of $2.6 million offset by non-cash charges
totaling $16.9 million, increases in accounts payable and
accrued liabilities of $1.6 million and deferred revenue of
$1.7 million. The increases in accounts receivable and
deferred revenue were a result of the increase in net revenue in
fiscal year 2000 as compared to the prior year. The non-cash
charges were primarily made up of amortization of intangibles of
$10.9 million arising from acquisitions during fiscal year
2000 and a stock-based compensation charge of $4.3 million.

In fiscal year 2001, the $12.7 million of
cash used in operating activities was primarily attributable to
our net loss of $211.2 million, a decrease in accrued
liabilities principally related to mergers and acquisitions of
$2.9 million and a decrease in deferred revenue of
$2.2 million offset, in part, by non-cash charges
aggregating $200.8 million and a decrease in accounts
receivable and prepaid expenses of $2.0 million and
$0.9 million, respectively. The decreases in accounts
receivable and deferred revenue were a result of the sharp
decrease in license revenue and a smaller growth rate of
maintenance and service revenue in the last two quarters of
fiscal year 2001 as compared to the last two quarters of fiscal
year 2000. The non-cash charges were primarily made up of
depreciation and amortization of intangibles of
$50.5 million, goodwill impairment charge of
$139.7 million, write-off of purchased in-process research
and development of $4.5 million, provision for sales
returns, doubtful accounts of $3.6 million and a stock
based compensation charge of $2.2 million.

In fiscal year 2002, the $13.8 million of
cash used in operating activities was primarily attributable to
our operating loss of $16.7 million, an increase in
accounts receivable of $0.2 million, decrease of accounts
payable and accrued liabilities of $2.5 million and
decrease in deferred revenue of $1.8 million offset in part
by non-cash charges aggregating $6.7 million and a decrease
in prepaid expenses and other current assets of
$0.4 million. The non-cash charges were primarily made up
of an impairment charge on intangibles of $1.2 million, an
amortization charge of $4.6 million related to intangibles
arising from acquisitions during fiscal year 2000 and a
stock-based compensation credit of $0.3 million resulting
from termination of employees.

Cash used in investing activities totaled
$1.2 million and $6.7 million in fiscal year 2000 and
2001, respectively. Cash provided by investing activities
totaled $4.2 million in fiscal year 2002. The increase in
cash used from investing activities in fiscal year 2001 was
attributable to the $5.0 of cash paid for our acquisition of the
InfoCharger Division of Tantau Software International, Inc.
During fiscal year 2002, $4.2 million of cash was provided
by investing activities, due primarily to the proceeds from sale
of technology assets of $4.3 million. Capital expenditures
in 2002 declined by $1.6 million from the prior year
principally due to the reductions in staffing effected during
fiscal year 2002, which eliminated the need for significant
asset additions.

Cash provided by financing activities was
$39.3 million in fiscal year 2000, which was generated
primarily from the net proceeds of $40.8 million from the
issuance of common stock in our initial public offering. Cash
used in financing activities was $0.4 million in fiscal
year 2001 and cash provided by financing activities was
$0.1 million in fiscal year 2002. The fiscal year 2001
activity includes repayment of a line of credit and equipment
loan of $1.5 million, increase in restricted cash of
$2.3 million and repurchase of common stock of
$0.3 million, offset by proceeds from short-term borrowings
of $2.0 million, proceeds from employee stock purchase plan
and stock options and warrants exercised of $1.8 million.
The 2002 activity primarily includes release of restricted cash
of $2.1 million offset by repayment of short-term
borrowings of $2.0 million.

We had $30.2 million and $4.2 million
in working capital at March 31, 2000, 2001, respectively.
We had a $1.1 million working capital deficit at
March 30, 2002. The decline in working capital during
fiscal year 2002 and 2001 was due principally to the level of
cash used in operating activities during fiscal year 2001 and
2002.

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Our current significant commitments consist of
non-cancelable operating leases for office facilities and
equipment and minimum royalty payments for licensed technology
used in our products, as noted below:


|                                   |  |                                       |       |                  |  |           |       |           |  |               |     |  |  |   |    |  |  |   |    | 
|---------------------------------- |  | ------------------------------------- | ----- | ---------------- |  | --------- | ----- | --------- |  | ------------- | --- |  |  | - | -- |  |  | - | -- | 
|                                   |  |                                      
|                                   |  | Payments Due by Period (in thousands)
|                                   |  |                                      
|                                   |  | Total                                 |       | Less than 1 year |  | 1-3 years |       | 4-5 years |  | After 5 years
|                                   |  |                                       |       |                  |  |           |       |           |  |              
|Contractual Cash Obligations       |  |                                       |       |                  |  |           |       |           |  |               |     |  |  |   |    |  |  |   |    | 
|Operating leases*                  |  | $                                     | 1,653 |                  |  | $         | 877   |           |  | $             | 737 |  |  | $ | 20 |  |  | $ | 19 | 
|Minimum royalty payments           |  |                                       | 350   |                  |  |           | 183   |           |  |               | 167 |  |  |   |   |  |  |   |   | 
|                                   |  |                                       |       |                  |  |           |       |           |  |               |     |  |  |   |    |  |  |   |    | 
|Total contractual cash obligations |  | $                                     | 2,003 |                  |  | $         | 1,060 |           |  | $             | 904 |  |  | $ | 20 |  |  | $ | 19 | 
|                                   |  |                                       |       |                  |  |           |       |           |  |               |     |  |  |   |    |  |  |   |    | 



---



|  |                           
|- | --------------------------
|* | excluding sub-lease income

As of March 30, 2002, our principal sources
of liquidity consisted of cash and cash equivalents of
$2.6 million. In June 2001 we entered into a one-year
accounts receivable purchase agreement with a financial
institution under which we can borrow up to an aggregate of
$1.5 million, renewable annually. The borrowing base under
this agreement is the lesser of 80% of eligible accounts
receivable or $1.5 million. As of March 30, 2002, we
have no borrowings pursuant to this agreement.

While we have substantially reduced our level of
operating expenses, Accrue continues to use available cash in
its operations and current cash resources available are likely
insufficient to fund our operations until we reach positive cash
flow. We will not have sufficient cash to achieve profitability,
if the trend of our current operating results continues and we
are unable to achieve increases in revenue and decreases in
expenses over the next two fiscal quarters absent additional
measures to increase our cash balances. We are evaluating
various initiatives to improve our cash position, including
selling additional stock, incurring additional debt,
implementing further restrictions on spending and other cash
generating initiatives. However, additional financing may not be
available on acceptable terms, if at all, especially in the
uncertain market climate, and we may not be successful in
implementing or negotiating such other arrangements to improve
our cash position. Failure to generate sufficient revenues,
reduce certain discretionary spending or raise additional
capital could have a material adverse effect on Accrues
ability to continue as a going concern and to achieve its
intended business objectives. If we were able to raise
additional funds through the issuance of equity or convertible
debt securities, the percentage ownership of our stockholders
would be reduced and these securities might have rights,
preferences and privileges senior to those of our current
stockholders. Any such financing will be dilutive to existing
stockholders. Moreover, any such cost cutting actions could have
a harmful effect on the Companys business and results of
operations.

RISK FACTORS

You should carefully consider the following
risks before making an investment in our Company. In addition,
you should keep in mind that the risks described below are not
the only risks that we face. The risks described below are all
the risks that we currently believe are material to our
business. However, additional risks not presently known to us,
or risks that we currently believe are immaterial, may also
impair our business operations. You should also refer to the
other information set forth in this Annual Report on
Form 10-K, including the discussions set forth in
Managements Discussion and Analysis of Financial
Condition and Results of Operations and
Business, as well as our financial statements and
the related notes.

Our business, financial condition, or results
of operations could be adversely affected by any of the
following risks. If we are adversely affected by such risks,
then the trading of our common stock could decline, and you
could lose all or part of your investment.

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| |                                             
| | --------------------------------------------
| | Risks Related To Our Financial
    Condition

CONCERNS ABOUT OUR FINANCIAL VIABILITY MAY
AFFECT OUR ABILITY TO CLOSE SALES TRANSACTIONS WITH CURRENT AND
PROSPECTIVE CUSTOMERS.

To date, we have been unable to fund operations
from cash generated by our business and have funded operations
primarily by selling securities. While we have substantially
reduced our level of operating expenses, the Company continues
to consume cash in its operations and cash resources available
to the Company are insufficient to fund our operations until we
reach positive cash flow. As a result, our audited financial
statements carry a qualified opinion that questions our ability
to remain a going concern. Customer concerns about our perceived
financial viability, particularly our lack of profitability and
low levels of working capital, has impacted our ability to close
customer transactions. These concerns will continue and likely
intensify in the foreseeable future until additional capital is
obtained. Please see Managements Discussion and
Analysis of Financial Conditions  Liquidity and
Capital Resources.

WE HAVE INCURRED SUBSTANTIAL LOSSES AND
NEGATIVE CASH FLOW DURING OUR OPERATING HISTORY, AND WE EXPECT
THESE LOSSES TO CONTINUE FOR THE FORESEEABLE FUTURE.

We have not achieved profitability. We incurred
net losses of $21.1 million for the fiscal year ended
March 31, 2000, $211.2 million for the fiscal year
ended March 31, 2001 and $12.1 million for the fiscal
year ended March 30, 2002. At March 30, 2002, we had
an accumulated deficit of $258.2 million. We expect to
continue to incur losses on both a quarterly and annual basis,
and may continue to do so for the foreseeable future. If we are
unable to increase our revenues from licensing, maintenance and
service each quarter while reducing our expenses from their
current level, we will not be able to achieve profitability. If
we do achieve profitability, we cannot be certain that we can
sustain or increase profitability on a quarterly or annual basis
in the future, or at all. Please see Selected Financial
Data and Managements Discussion and Analysis
of Financial Condition and Results of Operations for more
detailed information on our historical results of operations.

WE MAY BE REQUIRED TO SELL ADDITIONAL STOCK,
WHICH COULD DEPRESS OUR COMMON STOCK PRICE, OR INCUR
INDEBTEDNESS, WHICH COULD RESTRICT OUR OPERATIONS.

We are evaluating pursuing various initiatives to
improve our cash position, including selling additional stock,
incurring additional debt, implementing further restrictions on
spending, and other cash generating initiatives. However,
additional financing may not be available on acceptable terms,
if at all, especially in the uncertain market climate, and we
may not be successful in implementing or negotiating such other
arrangements to improve our cash position.

We cannot be certain that we would be able to
obtain additional financing on favorable terms, if at all.
However, if we were able to raise additional funds through the
issuance of equity or convertible debt securities, the
percentage ownership of our stockholders would be reduced and
these securities might have rights, preferences and privileges
senior to those of our current stockholders. As a result, any
such financing could cause our common stock price to decline.
Additionally, if we incur indebtedness to help us meet our
future capital requirements, this debt could contain covenants
that restrict our operations. If we cannot raise funds, if
needed, on acceptable terms, it is likely that we will not be
able to continue as a going concern and develop or enhance our
products and services, take advantage of future opportunities or
respond to competitive pressures or unanticipated capital
requirements. Please see Managements Discussion and
Analysis of Financial Conditions  Liquidity and
Capital Resources.

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CONCERNS ABOUT OUR FINANCIAL CONDITION COULD
IMPAIR OUR ABILITY TO RETAIN AND ATTRACT HIGH QUALITY EMPLOYEES
IN OUR MANAGEMENT, ENGINEERING AND MARKETING DEPARTMENTS WHICH
COULD SIGNIFICANTLY HARM OUR BUSINESS

Our success depends to a significant degree upon
the continued contribution from employees in our management,
engineering, sales and marketing departments. If we fail to
attract and retain high quality employees, our business
operations and operating revenues may be impaired. Concerns over
our financial viability have resulted in some voluntary employee
turnover and turnover could increase in the future. Our key
employees do not have employment or non-competition agreements
and could therefore terminate their employment with us at any
time without penalty. We do not maintain key person life
insurance policies on any of our employees. The market price of
our common stock has been volatile and has fluctuated
significantly in the past. To the extent this volatility and
fluctuation continues, equity-based compensation policies and
plans, which have historically been significant in our
attracting, hiring and retaining highly skilled personnel, may
not be as effective as in the past.

BECAUSE OUR MANAGEMENT TEAM HAS MANY NEW
MEMBERS, THERE IS NO CERTAINTY THAT THEY WILL WORK WELL TOGETHER
OR BE ABLE TO EFFECTIVELY MANAGE OUR OPERATIONS.

We changed the majority of the senior management
team during fiscal year 2002. We hired a new President and Chief
Executive Officer in April 2001, a new Vice President of
Marketing in May 2001, a new Vice President of Professional
Services in June 2001, a new Vice President of Sales in November
2001, a new Chief Financial Officer in November 2001 and a
new Chief Technology Officer in November 2001. In April,
2002 we terminated the employment of the President and Chief
Executive Officer and the Vice President of Sales, and appointed
our Vice President of Corporate Development and Strategy as the
interim President and CEO, and promoted our Vice President of
Marketing to Vice President of Sales and Marketing. In
connection with the sale of certain technology assets related to
the Pilot and HitList software products in May 2002, our Chief
Technology Officer resigned and became an employee of the
purchaser. In addition, in connection with the sale of the Pilot
assets, our Vice President of Engineering may become an employee
of the Purchaser at the end of a nine-month transition period.
Because our management team has limited experience working
together, they may not effectively manage our operations.
Management ineffectiveness could disrupt our entire business
operation, distract our employees and impair our ability to
execute our business strategy.

OUR COST-REDUCTION EFFORTS MAY ADVERSELY
IMPACT OUR PRODUCTIVITY AND SERVICE LEVELS.

We implemented various cost-control measures
affecting all areas of our business operations during the past
year, including reductions in our workforce, from 144 at
March 31, 2001 to 62 at May 31, 2002. Our recent
workforce reductions may hurt the morale and loyalty of our
employees. Additionally, the recent reduction or elimination of
cash bonuses, reductions in executive salaries, and some
employee fringe benefits may reduce incentives for our employees
to remain with us. We must continue to implement cost reduction
measures to align our expenses with revenues and improve our
overall cash position. These expense reductions will likely
include additional headcount reductions and there is no
assurance that these actions will not adversely impact our
employees morale and productivity, the competitiveness of
our products and business, and the results of our operations.

WE MAY ACQUIRE NEW BUSINESSES OR TECHNOLOGY,
OR ENTER INTO BUSINESS COMBINATIONS, TO REMAIN COMPETITIVE AND
GENERATE CASH. SUCH TRANSACTIONS MAY INVOLVE FINANCIAL,
INTEGRATION AND TRANSACTION COMPLETION RISKS, WHICH COULD
NEGATIVELY IMPACT OUR BUSINESS.

We made four acquisitions during the fiscal years
2000 and 2001 to support the development of Accrue G2 and
expansion of our business. In order to enhance our Internet
analytics product offering in order to grow our revenues and
market share and generate cash, we may decide to buy businesses,
products and technologies that complement or augment our
existing products or technologies. Acquisitions may be difficult

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to complete for reasons such as the cost of
potential transactions, competition among prospective buyers and
the need for regulatory approvals. We may not be able to
complete any given acquisition. We may need to raise additional
funds by selling our stock or borrowing money to finance a
potential acquisition. We may not be able to secure financing on
favorable terms, and the issuance of our stock may result in the
dilution of our existing stockholders.


The process of integrating an acquisition may
result in unforeseen operating difficulties and expenditures,
could disrupt our ongoing business, absorb significant
management attention, expose us to unknown liabilities, or
require additional costs for technology or personnel
integration, any of which could materially harm our business.
Moreover, we may fail to realize the anticipated benefits of any
acquisition. During fiscal years 2001 and 2002, we incurred
intangible asset and goodwill impairment charges related to
prior acquisitions of $139.7 million and $1.2 million,
respectively.

WE HAVE A LIMITED OPERATING HISTORY, MAKING IT
DIFFICULT FOR YOU TO EVALUATE OUR BUSINESS AND YOUR
INVESTMENT.

Accrue was formed in February 1996, and we
introduced Accrue Insight 1.0, our first software product, in
January 1997. For the fiscal years ended March 31, 2000,
2001 and 2002, we generated $18.9 million,
$25.6 million and $14.3 million in revenue,
respectively. Thus, we have a limited operating history upon
which you can evaluate our business and prospects. Due to our
limited operating history, it is difficult or impossible for us
to predict future results of operations. For example, we
forecast operating expenses based in part on future revenue
projections, which may not be achieved. Most of our expenses are
fixed in the short term and we may not be able to quickly reduce
spending if our revenue is lower than we had projected,
therefore net losses in a given quarter would be greater than
expected. In addition, our ability to forecast accurately our
quarterly revenue is limited due to a number of factors
described in detail below, making it difficult to predict the
quarter in which sales will occur. Moreover, due to our limited
operating history, any evaluation of our business and prospects
must be made in light of the risks and uncertainties often
encountered by early-stage companies in Internet-related
products and services markets, which is new and rapidly
evolving. Many of these risks are discussed under the
sub-headings below. We may not be able to successfully address
any or all of these risks and our business strategy may not be
successful. Please see Managements Discussion and
Analysis of Financial Condition and Results of Operations
for more detailed information on our historical results of
operations.

FLUCTUATIONS IN OUR OPERATING RESULTS MAKE IT
DIFFICULT TO PREDICT OUR FUTURE PERFORMANCE AND MAY RESULT IN
VOLATILITY IN THE MARKET PRICE OF OUR COMMON STOCK.

Our annual and quarterly operating results have
fluctuated in the past and may fluctuate significantly in the
future due to a variety of factors, particularly as a result of
the risks we describe in this discussion of risk factors.
Because our operating results are volatile and difficult to
predict, you should not rely on the results of one quarter as an
indication of future performance. It is likely that in some
future quarter our operating results will fall below the
expectations of securities analysts and investors. In this
event, the trading price of our common stock may fall
significantly. Please see Managements Discussion and
Analysis of Financial Condition and Results of Operations.



| |                                                    
| | ---------------------------------------------------
| | Risks Related to Our Market and Ability to
    Sell

OUR BUSINESS COULD BE MATERIALLY ADVERSELY
AFFECTED AS A RESULT OF GENERAL ECONOMIC AND MARKET
CONDITIONS.

We are subject to the effects of general global
economic and market conditions. The U.S. economy is much
weaker now then it has been in recent history, and may continue
to be weak for the foreseeable future. These economic conditions
may cause businesses to curtail or eliminate spending on
information technology, cancel the purchase of Internet
analytics software, or reduce or cancel orders for our products
and services. These adverse impacts, in turn, may lead to longer
sales cycles, delays in payment and collection, and price
pressures, causing the Company to realize lower revenues and
margins. If economic and market conditions do

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not improve, our business, results of operations
or financial condition could be materially adversely affected.
See Impact of Economic Downturn in Managements
Discussion and Analysis of Financial Condition and Results of
Operation for additional information on the impact of recent
economic conditions on our business.


WE ARE RELYING ON A NEW PRODUCT,
ACCRUE G2, TO GENERATE MOST OF OUR FUTURE REVENUES, WHICH
MAY NOT ACHIEVE MARKET ACCEPTANCE.

In May 2001, we announced the commercial launch
of Accrue G2, our next generation e-business analysis
solution. During the balance of fiscal year 2002, we sold
Accrue G2 to 14 customers. In addition, we expect to
introduce new and enhanced products during fiscal year 2003.

Accrue G2 has not received a significant
degree of market acceptance and may not in the future. There are
significant risks inherent in new product introductions
including the possible failure to address some or all of our
customers needs and undetected product errors or
deficiencies. Product deficiencies, errors or failures and a
lack of sufficient financial resources to invest in the sales
and marketing of Accrue G2 will likely result in loss or
delay of market acceptance. We expect that our future financial
performance will depend significantly on the successful sale,
implementation and market acceptance of Accrue G2 or
enhanced products that may not occur on a timely basis or at all.

Our new products are subject to significant
technical risks. We may fail to introduce or deploy new products
on a timely basis, or at all. In the past, we have experienced
some delays in the commencement of commercial shipments of our
new releases and new products. These delays caused customer
dissatisfaction and delay or loss of product revenues. Some of
our competitors currently offer products with features and
functionality similar to those of some of our new products. In
the past, we have also experienced delays in purchases of our
products by customers anticipating our launch of new releases or
new products. We could experience increased expenses or lost
revenues if customers defer material orders in anticipation of
new releases or new product introductions.

The software products we offer are complex and
may contain undetected errors or failures when first introduced,
or as new versions are released. We have in the past discovered
software errors in our new releases and new products after their
introduction. We also experienced release delays and lost
revenues during the period required to correct these errors. We
may discover errors in new releases or new products after the
commencement of commercial shipments, despite testing by our
personnel and our current and potential customers. This may
result in loss of or delay in market acceptance of our products,
which could seriously impair our ability to achieve
profitability.

WE FACE INTENSE COMPETITION THAT COULD MAKE IT
DIFFICULT FOR US TO ACQUIRE AND RETAIN CUSTOMERS NOW AND IN THE
FUTURE.

The market for Internet analytics solutions is
intensely competitive, evolving and subject to rapid
technological change. We expect the intensity of competition to
increase in the future. Competitors vary in size and in the
scope and breadth of the products and services they offer. Our
principal competitors today include:



| |   |                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | vendors of software that target Internet customer
    data collection and analysis markets such as SPSS/net.Genesis
    Corporation, and NetIQ/ Webtrends;                         
|
| |  | Application Service Provider (ASP) vendors such
    as Coremetrics, Inc. and digiMine, Inc.;                                                                                       
|
| |  | providers of business intelligence or customer
    relationship management (CRM) tools, such as E.piphany,
    MicroStrategy Inc., Business Objects S.A. and
    Informatica Corp.;
|
| |  | custom development efforts by system integrators
    and in-house developers.                                                                                                      

We expect that if we are successful in our
strategy to expand the scope of our products and services, we
may encounter many additional market-specific competitors. In
addition, because there are relatively low barriers to entry in
the software market, we expect additional competition from
traditional business intelligence and enterprise software
vendors as the Internet software market continues to develop and
expand. Some of these companies, as well as some other
competitors, have longer operating histories, significantly

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greater financial, technical, marketing and other
resources, significantly greater name recognition and a larger
installed base of customers than we have. In addition, many of
our competitors have well-established relationships with current
and potential customers of ours, have extensive knowledge
of our industry and are capable of offering a single-vendor
solution. As a result, our competitors may be able to respond
more quickly to new or emerging technologies and changes in
customer requirements, devote greater resources to the
development, promotion and sale of their products, or adopt more
aggressive pricing policies to gain market share. In addition,
current and potential competitors have established or may
establish cooperative relationships among themselves or with
third parties to increase the ability of their products to
address customer needs. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and
rapidly acquire significant market share. We also expect that
competition will increase as a result of software industry
consolidations.


Increased competition is likely to result in
price reductions, reduced gross margins and loss of market
share, any of which could seriously harm our business, financial
condition and results of operations. We may not be able to
compete successfully against current and future competitors, in
which case our business could suffer.

OUR VARIED SALES CYCLES MAKE IT DIFFICULT TO
BUDGET AND FORECAST OUR OPERATING RESULTS.

We have varied sales cycles because we generally
need to educate potential clients regarding the use and benefits
of our product applications, which has been the case with our
new product, Accrue G2. The stability of our sales cycle
continues to evolve as our products mature. Our sales cycles
make it difficult to predict the quarter in which sales may fall
and to budget and forecast operating results. In addition, a
significant portion of our sales falls within the last month of
a quarter, making it difficult to predict revenue until late in
the quarter and to adjust expenses accordingly. Our financial
condition may also adversely impact sales cycles, as we expect
certain customers to spend additional time evaluating our
products as well as financial viability during their purchasing
process.

OUR OPERATING RESULTS MAY BE ADVERSELY
AFFECTED BY SMALL DELAYS IN CUSTOMER ORDERS OR PRODUCT
INSTALLATIONS.

Small delays in customer orders can cause
significant variability in our license revenue and operating
results for any particular period. We derive a substantial
portion of our revenue from the sale of software products and
related services that is recognized under the percentage of
completion or completed contract method. Any delays during a
quarter in orders for delivery or product installation schedules
could harm operating results for that quarter.

FAILURE TO EXPAND OUR SALES OPERATIONS AND
CHANNELS OF DISTRIBUTION WOULD IMPACT OUR ABILITY TO ACHIEVE
PROFITABILITY.

In order to maintain and increase our market
share and revenue, we will need to expand our direct and
indirect sales operations and channels of distribution. We have
recently restructured our direct sales force and plan to hire
additional sales personnel with an increased emphasis on
building an indirect sales force. As of May 31, 2002, our
sales and marketing organization consisted of 11 employees.
New hires will require extensive training and typically take
several months to achieve productivity. In addition, we need to
expand our relationships with domestic and international channel
partners, distributors, systems integrators and other partners
to build our indirect sales channel, and there is no assurance
that we will be successful in this endeavor.

OUR INTERNATIONAL OPERATIONS EXPOSE US TO
GREATER INTELLECTUAL PROPERTY, COLLECTIONS, EXCHANGE RATE,
LABOR, REGULATORY AND OTHER RISKS, WHICH COULD MATERIALLY IMPACT
OUR FINANCIAL CONDITION AND ABILITY TO GROW.

Licenses and services sold to clients located
outside the United States were approximately 20% and 39% of the
total revenue for the years ended March 31, 2001 and
March 30, 2002, respectively. These results included
revenues from the Pilot and HitList products which we sold in
May 2002 and therefore are no longer

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available. We believe that we must expand our
international sales activities for Accrue G2 in order to be
successful, but cannot assure you that we will be able to do so.


Continued expansion of international sales will
require management attention and resources. We plan to enter
into alliances as part of our international strategy and expect
to rely extensively on these business partners to conduct
operations, coordinate sales and marketing efforts, and provide
software localization services. Typically, these alliances are
not subject to binding agreements, have no specified performance
requirements by our alliance partners, or us and may be
terminated by either party at any time. Our success in
international markets will depend on the success of our business
partners and their willingness to dedicate sufficient resources
to our relationships. We cannot be certain that we will be
successful in expanding internationally. International
operations are subject to other inherent risks, including:



| |   |                                                                           
| | - | --------------------------------------------------------------------------
| |  | difficulties in managing foreign operations;                              
|
| |  | potential unexpected changes in regulatory
    practices and tariffs      
|
| |  | complex, restrictive and potentially costly labor
    laws and practices; 
|
| |  | longer sales and collection cycles;                                       
|
| |  | foreign currency exchange rate fluctuations;                              
|
| |  | reduced protection for intellectual property
    rights in some countries;
|
| |  | seasonal reductions in business activity; and                             
|
| |  | expenses associated with localizing products for
    foreign countries.   

If we fail to address these risks adequately our
business may be seriously harmed.

IF WE FAIL TO SUCCESSFULLY PROMOTE OUR ACCRUE
BRAND NAME OR IF WE INCUR SIGNIFICANT EXPENSES PROMOTING AND
MAINTAINING OUR ACCRUE BRAND NAME, OUR BUSINESS COULD BE
HARMED.

Due in part to the emerging nature of the market
for Internet analytics solutions and the substantial resources
available to many of our competitors, there may be a
time-limited opportunity for us to achieve and maintain a
significant market share. Developing and maintaining awareness
of the Accrue brand name is critical to achieving widespread
acceptance of our Internet analytics solutions. Furthermore, the
importance of brand recognition will increase as competition in
the market for our products increases. Successfully promoting
and positioning the Accrue brand will depend largely on the
effectiveness of our marketing efforts and our ability to
develop reliable and useful products at competitive prices.
Therefore, we may need to increase our financial commitment to
creating and maintaining brand awareness among potential
customers, which we may be unable to do with our limited cash
reserves.



| |                              
| | -----------------------------
| | Risks Related to our Products

PRODUCT DEFECTS COULD LEAD TO LOSS OF
CUSTOMERS THAT COULD HARM OUR BUSINESS, RESULTS OF OPERATIONS
AND FINANCIAL CONDITION.

Despite internal testing and testing by current
and potential customers, our current and future products may
contain serious defects, including Year 2000 errors, the
occurrence of which could result in adverse publicity, loss of
or delay in market acceptance, or claims by customers against
us, any of which could harm our business, results of operations,
and financial condition. In addition, our products and product
enhancements are very complex and may from time to time contain
errors or result in failures that we did not detect or
anticipate when introducing our products or enhancements to the
market. The computer hardware environment is characterized by a
wide variety of non-standard configurations that make
pre-release testing for programming or compatibility errors very
difficult and time consuming. Despite our testing, errors may
still be discovered in some new products, including our most
important product, Accrue G2, or in enhancements after the
products or enhancements are delivered to customers.

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IF WE ARE UNABLE TO MEET THE RAPID CHANGES IN
E-COMMERCE TECHNOLOGY, OUR PRODUCT REVENUE COULD
DECLINE.

The market for our products is characterized by
rapid technological change, frequent new product introductions,
Internet related technology enhancements, uncertain product life
cycles, changes in client demands and evolving industry
standards. We cannot be certain that we will successfully
develop and market new products, new product enhancements or new
products compliant with present or emerging Internet technology
standards. In developing our products, we have made, and will
continue to make, assumptions with respect to which standards
our industry, customers and competitors will adopt, and the
level of features and complexity that our customers may require.
If the standards adopted are different from those that we have
chosen to support, market acceptance of our products may be
significantly reduced or delayed and our business will be
seriously harmed. Similarly, if our products do not meet
customer requirements for features and functionality, our
business will be seriously harmed. In addition, we may be
required to make significant expenditures to adapt our products
to changing or emerging technologies. New products based on new
technologies or new industry standards can render existing
products obsolete and unmarketable. For example, two of our
competitors provide Internet analytics software solutions as
application service providers, but we do not offer our products
in this manner. If this approach to delivery of Internet
analytics software solutions was to gain broad market acceptance
and we were required to develop this type of offering to remain
competitive, we would need substantial additional resources to
do so. To succeed, we will need to enhance our current products
and develop new products on a timely basis to keep pace with
developments related to Internet technology and to satisfy the
increasingly sophisticated requirements of our clients. Internet
analytics technology is complex and new products and product
enhancements can require long development and testing periods.
Any delays in developing and releasing enhanced or new products
could harm our business, operating results and financial
condition.

ACCRUE G2, OUR MOST IMPORTANT PRODUCT, IS NOT
PROTECTED BY PATENTS. IF ANOTHER PARTY WERE TO USE THIS
TECHNOLOGY, OUR BUSINESS WOULD SUFFER.

We regard substantial elements of our Internet
analytics solutions as proprietary and attempt to protect them
by relying on trademark, service mark, trade dress, copyright,
and trade secret laws and restrictions, as well as
confidentiality procedures and contractual provisions. However,
patents do not protect Accrue G2, our most important product.
Any steps we take to protect our intellectual property may be
inadequate, time consuming, and expensive. In addition, despite
our efforts, we may be unable to prevent third parties from
infringing upon or misappropriating our intellectual property,
which could have a material adverse effect on our business.
Furthermore, legal standards relating to the validity,
enforceability, and scope of protection of intellectual property
rights in Internet-related industries are uncertain and still
evolving, and the future viability or value of any of our
intellectual property rights is uncertain. Effective trademark,
copyright, and trade secret protection may not be available in
every country in which our products are distributed or made
available through the Internet. Furthermore, our competitors may
independently develop similar technology that substantially
limits the value of our intellectual property or design around
patents issued to us.

OTHERS MAY BRING INFRINGEMENT CLAIMS AGAINST
US THAT COULD HARM OUR BUSINESS, RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.

In addition to the technology we have developed
internally, we also use code libraries developed and maintained
by third parties and have acquired or licensed technologies from
other companies. Our internally developed technology, the code
libraries, or the technology we acquired or licensed may
infringe a third partys intellectual property rights who
may bring claims against us alleging infringement of their
intellectual property rights. In recent years, there has been
significant litigation in the United States involving patents
and other intellectual property rights. We are not currently
involved in any intellectual property litigation. However, as
the number of entrants into our market increases, the
possibility of an intellectual property claim against us grows
and we may be a party to litigation in the future to protect our
intellectual property or as a result of an alleged infringement
of others intellectual property. These claims and any
resulting litigation could subject us to significant liability
for damages and invalidation of our proprietary rights, would
likely be time-consuming

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and expensive to defend and would divert
management time and attention. Any potential intellectual
property litigation could also force us to do one or more of the
following:




| |   |                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | cease selling, incorporating, or using products
    or services that incorporate the challenged intellectual
    property;                                                                                 
|
| |  | obtain from the holder of the infringed
    intellectual property right a license to sell or use the
    relevant technology, which license may not be available on
    reasonable terms, or at all; and/or
|
| |  | redesign those products or services that
    incorporate infringing technology.                                                                                                                            

Any of these results could seriously harm our
business.

WE ARE SUBJECT TO POTENTIAL PRODUCT LIABILITY
CLAIMS THAT COULD REQUIRE CONSIDERABLE EFFORT AND EXPENSE TO
DEFEND AND WHICH COULD HARM OUR BUSINESS.

Our products are used to monitor the traffic data
of our customers Web sites, and to segment, analyze and
report this data. These and other functions that our products
provide are often critical to our customers, especially in light
of the considerable resources many organizations spend on the
development and maintenance of their Web sites. Our end-user
licenses contain provisions that limit our exposure to product
liability claims, but these provisions may not be enforceable in
all jurisdictions. Additionally, we maintain limited product
liability insurance. To the extent our contractual limitations
are unenforceable or these claims are not covered by insurance,
a successful product liability claim could harm our business.



| |                              
| | -----------------------------
| | Risks Related to our Industry

EVOLVING REGULATION OF THE INTERNET MAY HARM
OUR BUSINESS.

As e-commerce continues to evolve, increasing
regulation by federal, state, or foreign agencies becomes more
likely. This regulation is likely in the areas of user privacy,
pricing, content, quality of products and services, taxation,
advertising, intellectual property rights, and information
security. In particular, laws and regulations applying to the
solicitation, collection, or processing of personal or consumer
information could negatively affect our activities. Typically,
our products capture traffic data when consumers, business
customers or employees visit a Web site. The perception of
security and privacy concerns, whether or not valid, may
indirectly inhibit market acceptance of our products. In
addition, legislative or regulatory requirements may heighten
these concerns if businesses must notify Web site users that the
data captured after visiting Web sites may be used by marketing
entities to unilaterally direct product promotion and
advertising to that user. We are not aware of any similar
legislation or regulatory requirements currently in effect in
the United States. Other countries and political entities, such
as the European Economic Community, have adopted legislation or
regulatory requirements. The United States may adopt similar
legislation or regulatory requirements. If consumer privacy
concerns are not adequately addressed, our business could be
harmed. Moreover, the applicability to the Internet of existing
laws governing issues such as intellectual property ownership
and infringement, copyright, trademark, trade secret, obscenity
and libel is uncertain and developing. Furthermore, any
regulation imposing fees or assessing taxes for Internet use
could result in a decline in the use of the Internet and the
viability of e-commerce. Any new legislation or regulation, or
the application or interpretation of existing laws or
regulations, may decrease the growth in the use of the Internet,
may impose additional burdens on e-commerce or may require us to
alter how we conduct our business. This could decrease the
demand for our products and services, increase our cost of doing
business, increase the costs of products sold through the
Internet or otherwise have a negative effect on our business,
results of operations and financial condition.

THE MARKET PRICE FOR OUR COMMON STOCK, LIKE
OTHER TECHNOLOGY STOCKS, HAS BEEN AND MAY CONTINUE TO BE
VOLATILE.

The stock markets have, in general, and with
respect to Internet companies in particular, recently
experienced extreme stock price and volume volatility, resulting
in significant decreases in companies stock prices. The
decreases in stock prices for many companies in the technology
and emerging growth sector have

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often been unrelated to the operating performance
of these companies in many cases. Fluctuations such as these
have at times affected the market price of our common stock. Our
common stock is trading at a level significantly below its
historic levels, and there can be no assurance that our stock
price will increase significantly in the foreseeable future. In
addition, if we fail to address any of the risks described in
this section, the market price for our common stock, and
consequently, the value of your investment, could decline
further. In addition, securities class action claims have been
brought against companies in the past where volatility in the
market price of that Companys securities has taken place.
This kind of litigation could be very costly and divert our
managements attention and resources, and any adverse
determination in this litigation could also subject us to
significant liabilities, any or all of which could seriously
harm our business and the value of your investment.


THE FAILURE TO RETAIN AND ATTRACT KEY
TECHNICAL PERSONNEL COULD HARM OUR BUSINESS AND DECREASE THE
VALUE OF YOUR INVESTMENT.

Because of the complexity of our products and
technologies, we are substantially dependent upon the continued
service of our existing product development personnel. The
competition for qualified engineers in the computer software and
Internet markets is intense. New personnel will require training
and education and take time to reach full productivity. Our
future success depends on our ability to attract, train and
retain these key personnel.



| |                                                                             
| | ----------------------------------------------------------------------------
| | Risks Related to our Securities Market and
    Ownership of our Common Stock

IF WE ARE UNABLE TO COMPLY WITH NASDAQS
CONTINUED LISTING REQUIREMENTS, OUR COMMON STOCK COULD BE
DELISTED FROM THE NASDAQ SMALLCAP MARKET.

Since March 6, 2001, our common stock has
failed to maintain a minimum bid price of $1.00 per share for at
least 10 consecutive days, which caused our stock price to fail
to meet one of the minimum standards required by the Nasdaq
Stock Market for continued listing as a Nasdaq National Market
security. In order to avoid delisting from Nasdaq entirely, we
voluntarily applied to Nasdaq to have our listing transferred to
the SmallCap Market. On May 13, 2002 our application was
approved to transfer the listing of our common stock to the
Nasdaq SmallCap Market. The SmallCap Market also requires
compliance with a minimum bid price of $1.00 per share for at
least 10 consecutive days. We must be in compliance with this
requirement by August 13, 2002. Should our common stock
fail to meet the minimum bid price requirement prior to that
date, in order to regain compliance, we will take all reasonable
measures to regain compliance, including possibly effecting one
or more of the reverse stock split proposals approved by our
stockholders at our last annual meeting, which may be
implemented by us at any time prior to September 21, 2002.

Nasdaq also currently requires that an issuer
have shareholders equity of at least $2.5 million to
maintain listing on the National SmallCap Market. As of
March 30, 2002, the company had stockholders equity
of $5.6 million. Incurring additional operating losses
without a substantial increase in revenues or an infusion of
additional capital to offset such losses could result in the
companys stockholders equity falling below the level
required for continued listing as a National Market security.

There can be no assurance that we will be able to
satisfy all requirements for continued listing of our common
stock on the Nasdaq SmallCap Market, including the minimum bid
price requirement and minimum tangible assets or
stockholders equity requirements, either by effecting one
or more reverse stock splits or by other means. If we are unable
to meet Nasdaqs requirements in the future, our stock will
be subject to delisting, which may have a material adverse
effect on the price of our common stock and the levels of
liquidity currently available to our stockholders.

SUBSTANTIAL SALES OF OUR COMMON STOCK COULD
CAUSE OUR STOCK PRICE TO DECLINE.

Sales of a substantial number of shares of common
stock in the public market, or the perception that these sales
may occur, could adversely affect the market price of the common
stock by potentially introducing a large number of sellers of
our common stock into a market in which the common stock price
is already

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volatile, thus driving the common stock price
down. In addition, the sale of these shares could impair our
ability to raise capital through the sale of additional equity
securities. As of May 31, 2001, we had 30,074,620 shares of
common stock outstanding.


4,485,000 shares of our common stock, including
the underwriters option to purchase additional shares,
which was exercised in full, were registered in connection with
the initial public offering of our common stock. Of the
3,225,261 shares of our common stock issued to the stockholders
of Marketwave Corporation in connection with our acquisition of
that Company, 1,088,309 shares are registered on a registration
statement on Form S-3 declared effective on
December 14, 2000. 1,666,667 shares of our common stock
were issued to Tantau Software, Inc. in connection with our
purchase of certain assets from Tantau and its wholly owned
subsidiary, Tantau Software International, Inc., and registered
pursuant to a registration statement on Form S-3/A declared
effective by the Securities and Exchange Commission on
December 14, 2000. 974,273 shares of our common stock were
issued to Aviator Holding Corporation and its direct and
indirect subsidiaries, including its wholly owned subsidiary
Pilot Software, Inc., and registered pursuant to a registration
statement on Form S-3 declared effective by the Securities
and Exchange Commission on December 14, 2000. The foregoing
shares issued to the Marketwave, Tantau and Aviator
shareholders, may be sold subject to the terms of the applicable
registration statement without restriction or further
registration under the federal securities laws unless held by
our affiliates as that term is defined in
Rule 144 while the respective registration statements
remain effective. The remaining 21,989,409 shares of common
stock outstanding are restricted securities as that
term is defined in Rule 144; however, virtually all of
these shares are eligible for sale, in some cases only subject
to the volume, manner of sale and notice requirements of
Rule 144. In addition, we have registered a total of
16,972,731 shares of our common stock under our existing stock
option and employee stock purchase plans.

THE EFFECTS OF ANTI-TAKEOVER PROVISIONS IN OUR
CHARTER DOCUMENTS AND IN DELAWARE LAW COULD PREVENT A CHANGE IN
CONTROL OF ACCRUE WHICH MAY REDUCE THE MARKET PRICE OF OUR
COMMON STOCK.

Provisions of our certificate of incorporation
and bylaws may have the effect of delaying or preventing a
merger or sale of Accrue, or making a merger or acquisition less
desirable to a potential acquirer, even where stockholders may
consider the acquisition or merger favorable. These provisions
could also have the effect of making it more difficult for a
third party to effect a change of control of the board of
directors. The issuance of preferred stock may have the effect
of delaying, deferring, or preventing a change in control
without further action by the stockholders. Any issuance of
preferred stock may harm the market price of the common stock.
The issuance of preferred stock may also result in the loss of
the voting control of holders of common stock to the holders of
the preferred stock.

BECAUSE ACCRUES OFFICERS AND DIRECTORS
OWN APPROXIMATELY 14% OF THE OUTSTANDING COMMON STOCK, YOU AND
OTHER INVESTORS WILL HAVE MINIMAL INFLUENCE ON STOCKHOLDER
DECISIONS.

As of May 31, 2002, our officers and
directors beneficially owned approximately 14% of our
outstanding common stock. As a result, they will be able to
exercise significant influence over all matters requiring
stockholder approval, and you and other investors will have
minimal influence over the election of directors or other
stockholder actions. As a result, these stockholders could
approve or cause Accrue to take actions that you disapprove or
that are contrary to your interests and those of other
investors. Our certificate of incorporation and bylaws do not
provide for cumulative voting; therefore, our controlling
stockholders will have the ability to elect all of our
directors. The controlling stockholders will also have the
ability to approve or disapprove significant corporate
transactions without further vote by the investors who purchase
common stock pursuant to this offering. This ability to exercise
influence over all matters requiring stockholder approval could
prevent or significantly delay another Company or person from
acquiring or merging with us.






|         |                                                                
|-------- | ---------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risks

We have limited exposure to financial market
risks, including changes in interest rates and foreign currency
exchange rates.

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Interest Rate Risk

Our exposure to interest rate risk relates
primarily to our investment portfolio and credit facilities. All
investments are classified as cash equivalents and are deposited
with financial institutions carried at cost, which approximate
market value. We do not plan to use derivative financial
instruments in our investment portfolio. If market rates were to
increase immediately and uniformly by 10% from levels at
March 31, 2000, March 31, 2001 and March 30,
2002, the decline in fair value of the portfolio would not be
material. We plan to ensure the safety and preservation of our
invested principal funds by limiting default risks, market risk
and reinvestment risk. We plan to mitigate default risk by
investing in high-credit quality securities.

Foreign Currency Risk

Although we have foreign sales offices in Europe
and Canada, to date our exposure to foreign currency rate
fluctuations has not been significant. Sales in the Americas are
transacted in U.S. dollars, and sales in Europe have
generally been transacted in local currencies. Operating
expenses of foreign offices are funded from collections in local
currencies and, from time to time, in intercompany loans made in
U.S. dollars. The Companys foreign currency risks are
mitigated principally by maintaining only minimal foreign
currency balances. However, if we increase our international
business we could be subject to risks typical of an
international business, including but not limited to differing
economic conditions, changes in political climate, differing tax
structures, other regulations and restrictions, and foreign
exchange rate volatility. Accordingly, our future results could
be materially adversely impacted by changes in these or other
factors.

To date, we do not use derivative financial
instruments for speculative trading purposes, nor do we hedge
any foreign currency exposure in a manner that entirely offsets
the effects of changes in foreign exchange rates.

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|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

|   |  |                                                                                                                                                                                                                                                                                          |  |        |    | 
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------ | -- | 
|   |  |                                                                                                                                                                                                                                                                                          |  | Page  
|   |  |                                                                                                                                                                                                                                                                                          |  | Number
|   |  |                                                                                                                                                                                                                                                                                          |  |       
|1. |  | Index to Consolidated Financial
    Statements                                                                                                                                                                                                                                           |  |        |    | 
|   |  | The following Consolidated Financial Statements
    are filed as part of this Report.                                                                                                                                                                                                    |  |        |    | 
|   |  | Independent Auditors Report                                                                                                                                                                                                                                                             |  |        | 68 | 
|   |  | Consolidated Balance Sheets as of March 31,
    2001 and March 30, 2002                                                                                                                                                                                                                  |  |        | 69 | 
|   |  | Consolidated Statement of Operations for the
    fiscal years ended March 31, 2000, March 31, 2001 and
    March 30, 2002                                                                                                                                                                |  |        | 70 | 
|   |  | Consolidated Statement of Stockholders
    Equity for the fiscal years ended March 31, 2000,
    March 31, 2001 and March 30, 2002                                                                                                                                                      |  |        | 71 | 
|   |  | Consolidated Statement of Cash Flows for the
    fiscal years ended March 31, 2000, March 31, 2001 and
    March 30, 2002                                                                                                                                                                |  |        | 72 | 
|   |  | Notes to Consolidated Financial Statements                                                                                                                                                                                                                                               |  |        | 73 | 
|2. |  | Index to Supplemental Financial
    Information                                                                                                                                                                                                                                          |  |        |    | 
|   |  | The supplementary financial information required
    by this Item is included in the section of this report captioned
    Managements Discussion and Analysis of Operating
    Results under the heading Selected Consolidated
    Quarterly Operating Results.                     |  |        | 25 | 
|3. |  | Index to Financial Statement
    Schedule                                                                                                                                                                                                                                                |  |        |    | 
|   |  | The following financial statement schedule of
    Accrue Software, Inc. for the years ended March 31, 2000
    and 2001 and March 30, 2002 is filed as apart of this
    report and should be read in conjunction with the Consolidated
    Financial Statements of Accrue Software Inc. |  |        |    | 
|   |  | Schedule II  Valuation and
    Qualifying Accounts for the fiscal years ended
    March 31,2000, March 31, 2001 and March 30, 2002                                                                                                                                                      |  |        | 93 | 
|   |  | Schedules other than that listed above have been
    omitted since they are either not required, not applicable or
    the information is otherwise included.                                                                                                                            |  |        |    | 

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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes In and Disagreements With
    Accountants on Accounting and Financial Disclosure

None.




PART III




Item 10. Directors and Executive
Officers of the Registrant

Our directors and executive officers and their
ages at March 30, 2002 are as follows:

|                        |  |     |    |          |  |                                                                
|----------------------- |  | --- | -- | -------- |  | ---------------------------------------------------------------
|Name                    |  | Age |    | Position
|                        |  |     |    |         
|Jeffrey S. Walker(3)    |  |     | 51 |          |  | President, Chief Executive Officer and Director                
|Jonathan D. Becher(3)   |  |     | 37 |          |  | Senior Vice President of Corporate Development
    and Strategy
|Gregory S. Carson       |  |     | 47 |          |  | Chief Financial Officer                                        
|John DAlbis            |  |     | 43 |          |  | Chief Technology Officer                                       
|Richard DAngelo(3)     |  |     | 52 |          |  | Vice President Sales                                           
|P.K. Karnik             |  |     | 46 |          |  | Vice President of Worldwide Client Services                    
|Tom Lefort              |  |     | 52 |          |  | Vice President of Product Development                          
|Denise Senter-Loyola(3) |  |     | 36 |          |  | Vice President of Marketing                                    
|Yorgen Edholm(1)        |  |     | 47 |          |  | Director                                                       
|David Folkman(1)        |  |     | 67 |          |  | Director                                                       
|Max D. Hopper(2)        |  |     | 67 |          |  | Director                                                       
|Zev Laderman(1)         |  |     | 41 |          |  | Director                                                       
|Jonathan Nelson         |  |     | 34 |          |  | Director                                                       
|Robert Smelick(2)       |  |     | 60 |          |  | Chairman of the Board of Directors                             



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Member of Audit Committee                                                                                                                                                                                                                                                                                                                                                                          
|   
|(2) | Member of Compensation Committee                                                                                                                                                                                                                                                                                                                                                                   
|   
|(3) | During April 2002, Mr. Walkers and
    Mr. DAngelos employment were terminated, and
    Mr. Walker resigned as a Director. Mr. Becher was
    appointed as Interim President and Chief Executive Officer, and
    Ms. Senter-Loyola was appointed Vice President of Sales and
    Marketing. Mr. Bruce Armstrong joined the board, and was
    appointed a member of the Compensation committee.

Jeffrey S. Walker,President and Chief Executive Officer, joined Accrue and became
President, Chief Executive Officer and a director in April 2001
and resigned effective April 17, 2002. Prior to joining
Accrue, from January 2000 to February 2001, Mr. Walker was
Chief Executive Officer of ICplanet, an Internet technology
company providing recruiting tools for businesses. Prior to his
tenure at ICplanet, from August 1998 to December 1999,
Mr. Walker was Vice President and Managing Director of
Computer Sciences Corporations (CSC) consulting group
where he focused on e-business strategies for startups and
corporate clients. Mr. Walker also served as President of
Planmetrics, a consulting firm focused on growth and marketing
strategies for the energy industry, from March 1997 to August
1998. Prior to that, he was Vice President of CSC Index, a
management consulting firm, from April 1992 to March 1997.
Mr. Walker holds a B.A. degree from University of Oregon.
Currently, Mr. Walker serves on the advisory Board for
Chevrons Gulf Lubricants Company.

Jonathan Becher,Senior Vice President of Corporate Development and Strategy,
joined Accrue in January 2000 with Accrues acquisition of
NeoVista Software. Effective April 18, 2002 he replaced
Jeffrey Walker as Interim President and Chief Executive Officer.
Mr. Becher was Neovistas Chief Technology Officer
from March 1996 to January 2000 also served as President and
Chief Executive Officer from July 1999 to January 2000. From
March 1995 to March 1996, he served as Director of Applications
at MasPar Computer Corporation, a producer of parallel computing
products. Mr. Becher holds a B.S. degree in

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Computer Engineering from University of Virginia
and an M.S. degree in Computer Science from Duke University.


Gregory S.
Carson,Chief Financial Officer,
joined Accrue in November 2001. Prior to joining Accrue, from
October 1997 to October 2001, Mr. Carson served as Chief
Financial Officer for Business Engine Software, a provider of
project, resource and financial management software. From
February 1995 to December 1996, he served as Chief Financial
Officer of The Morgan Health Group, a physician practice
management company. From September 1993 to August 1994, he was
Chief Financial Officer of SofNet, Inc., a provider of fax
software. From June 1991 to January 1993, he was Chief Financial
Officer of Zsoft, a PC graphics software company. From 1988 to
1991, he held financial management and business planning
positions at GTE Interactive Services, which had acquired Choice
Computer Systems in April 1988. From June of 1985 to April of
1988, he was Chief Financial Officer of Choice Computer Systems,
a provider of communications polling and retail management
application software. Previously, from 1980-1985, he held a
variety of financial management, and business planning positions
at Sun Life Group (now Sun America, Inc.), and was with Deloitte
Haskins and Sells during 1979-1980. Mr. Carson holds an
M.B.A. degree from the University of Chicago and a B.B.A. degree
from the University of Georgia, and is a Certified Public
Accountant.

John DAlbis,Chief Technology Officer, joined Accrue in September 2000 as a
result of Accrues acquisition of Pilot Software, and
resigned effective May 30, 2002. From January 1985 to
September, 2000 Mr. DAlbis held management positions
in research and development, and engineering, and was most
recently Pilots Chief Technical Officer responsible for
Pilots global development effort with teams in Cambridge,
Massachusetts, Moscow, Russia, Madras, India and Stafford, U.K.
From 1982 to December 1984, Mr. DAlbis was a Model
204 database engineer with Computer Corporation of America.
Mr. DAlbis holds a B.A. in chemistry from Dartmouth
College.

Richard
DAngelo,Vice President of
Sales, joined Accrue in November 2001 and terminated effective
April 18, 2002. Prior to joining Accrue, he was Vice
President, Worldwide Field Operations for Moai Technologies.
From 1998 to 2001 he served as Vice President, Worldwide Sales
for Entegrity Solutions. He was the Vice President, Worldwide
Sales, for Atalla Corporation, (a Compaq Company) from 1996 to
1998. He was the Vice President, Indirect Channels and Solutions
Sales, at Pyramid Technology Corporation from 1994 to 1996.
Mr. DAngelo also served as Director of Western Region
for MasPar Computer Corporation from 1993-1994; General Manager,
Western Operations, Sequent Computer Systems from 1990-1993;
Director, Eastern Region, Sequent Computer Systems, from
1989-1990; and he held various sales management positions at
Hewlett Packard Company during 1976-1989. Mr. DAngelo
holds an MBA degree and Bachelor of Science degree in Business
Administration from Northeastern University, Boston, MA.

Prashant K. Karnik,Vice President of Worldwide Client Services, joined Accrue
Software in June 2001. Prior to joining Accrue, Mr. Karnik
was Vice President of Global Professional Services at Aspect
Communications, a Customer Relationship Management solution
provider from October 1999 to June 2001. Prior to Aspect, he
founded Aptia, Inc., an e-commerce-focused Application Service
Provider and professional services company, and served as vice
president of marketing and business development from November
1996 to October 1999. From April 1986 to November 1996
Mr. Karnik held a variety of senior management positions
within Hewlett Packards worldwide services organization.
Mr. Karnik holds an M.B.A. from New Hampshire College and
an M.S. in industrial engineering from Rutgers University. He
received his B.S. in mechanical engineering from S.G.
University, India.

Tom Lefort,Vice
President of Product Development, joined Accrue in September
2000 as a result of Accrues acquisition of Pilot Software.
Prior to joining Accrue, from April 1988 to September 2000,
Mr. Lefort held various management positions in field
consulting, applications development and product development at
Pilot Software, Inc. From January 1979 to April 1988, he was
Manager of New Systems Development at Wyman-Gordon Company, a
provider of precision forgings. Mr. Lefort holds a
Bachelors degree in Business and an AAS in Civil
Engineering from Erie County Tech. He is also a graduate of
Worcester Polytechs School of Industrial Management.

Denise
Senter-Loyola,Vice President of
Marketing and Sales joined Accrue in July 2001. Prior to joining
Accrue, she was Vice President of Marketing at Indus
International, an enterprise asset management software

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provider, from January 2000 to September 2000.
From November 1993 to January 2000, she worked at Computer
Sciences Corporation, most recently as a partner in CSCs
Strategic Services Consulting Group. She was an independent
business consultant, working on marketing strategy for a variety
of clients, from April 1989 to October 1993. From June 1983 to
March 1989 she held various marketing management positions in
the Financial Services and Retail/ Commercial Services Divisions
with EDS. Ms. Senter-Loyola holds a B.S. in Applied
Economics from the University of San Francisco.


Yorgen Edholmhas
served as a director of Accrue since April 2001. Mr. Edholm
is currently the Chief Executive Officer of DecisionPoint
Applications. From 1989 to January 2001, Mr. Edholm was the
President, Chief Executive Officer and co-founder of Brio
Technology, a provider of business intelligence software
solutions. Prior to Brio Technology, from 1985 to 1989,
Mr. Edholm was a consultant working for companies such as
PepsiCo, Procter & Gamble, General Mills, Kraft Foods
and Mobil Chemical. Mr. Edholm also worked for Arthur Young
& Company, where he co-founded the companys Decision
Support Practice. Mr. Edholm holds an M.S. degree in
Engineering Physics from the Royal Institute of Technology,
Stockholm and an MBA from the Stockholm School of Economics.

David Folkmanhas
served as a director of Accrue since December 1999.
Mr. Folkman currently serves as Chief Executive Officer,
President and a director of On-Site Dental Care, Inc., a private
early stage company and since January 1991 he also has served as
a principal and director of Regent Pacific Management Corp., a
consulting firm whose engagements primarily comprise management
and advisory services for a wide range of businesses as well as
consumer product firms. During his tenure at Regent Pacific
Management, Mr. Folkman devoted one year, from April 1998
to April 1999, as president of Natural Wonders, Inc., a chain of
stores in the nature and science gift niche, which subsequently
filed a petition for reorganization under Chapter 11 in
December 2000. In addition, he served from February 1993 to July
1995, as Chief Executive Officer and President of Esprit de
Corp, an apparel manufacturer, wholesaler and retailer.
Previously, from April 1987 to December 1990, Mr. Folkman
was a general partner of U.S. Venture Partners, managing a
venture fund with investments in technology, biomedical and
retail start-ups, and from April 1982 to April 1987, he served
as Chief Executive Officer and President of The Emporium, a
division of Carter Hawley Hale Stores, Inc. (now owned by
Federated Department Stores, Inc.). Mr. Folkman also
currently serves as a director of Shoe Pavilion, Inc.
Mr. Folkman holds an B.A. degree in Social Relations from
Harvard College and an M.B.A. from Harvard Business School.

Max D. Hopperhas
served as a director of Accrue since March 1999. Mr. Hopper
has been the Chief Executive Officer of Max D. Hopper
Associates, Inc., an Information Services management consulting
firm, since January 1995. From 1985 to January 1995, he served
in various positions at American Airlines, a subsidiary of AMR
Corporation, most recently as Senior Vice President, Information
Systems and Chairman of the SABRE Group, a provider of
information technology services to the travel and transportation
industry. Mr. Hopper is also a director of Gartner Group,
Inc., a provider of information technology research and
recommendations, Metrocall, Inc., a provider of local and
regional paging service, and United Stationers, Inc., a
wholesaler of office supplies and equipment. Mr. Hopper
received a B.S. degree in Mathematics from University of Houston.

Zev Ladermanhas
served as a director of Accrue since May 2001. Mr. Laderman
was the President and Chief Executive Officer of VerticalNet
Solutions until June 2001. Prior to VerticalNet, from August
1999 to September 2000, Mr. Laderman served as Chief
Executive Officer for Tradeum, a commerce software provider for
business-to-business digital marketplaces that was acquired by
VerticalNet in March 2000. From August 1998 to June 1999,
Mr. Laderman served as Executive Vice President of Global
Sales at RTS Software. Mr. Laderman also served many
executive roles at Oracle Corporation from March 1995 to August
1998, most recently as Vice President of Oracles
Industrial Sector of Global Business Unit. Mr. Laderman
holds an LLB degree in Law from Hebrew University, an LLM degree
in Law from Bar-Ilan University in addition to an MBA from
Stanford Universitys Graduate School of Business.

Jonathan Nelsonserved as a director of Accrue from its inception in February
1996 to late 1999, and was re-appointed as a member of the board
in January 2001. Mr. Nelson has served as the Board
Chairman of Organic, Inc., an online business builder, since
November 1993, and also served as its Chief Executive Officer

48



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##### Table of Contents



from November 1993 to December 2000. He also
served as Accrues President and Chief Executive Officer
from February 1996 until May 1996. Mr. Nelson received a
B.A. degree in History and Art History from Allegheny College.


Robert Smelickhas
served as a director of Accrue since May 1996. Mr. Smelick
is the managing director of Sterling Payot Management, Inc., the
general partner of Sterling Payot Capital, L.P., an investment
partnership specializing in technology based start-up companies
and he is also a managing principal and founding director of
Sterling Payot Company, a private investment banking firm.
Before founding Sterling Payot Company in 1989, Mr. Smelick
was a Managing Director of First Boston Corporation. Prior to
that, Mr. Smelick was an investment banking partner of
Kidder, Peabody & Co. Mr. Smelick received a B.A.
degree from Stanford University and an M.B.A. from Harvard
Business School. He also attended University of Melbourne in
Melbourne, Australia.

Bruce Armstrongjoined the Accrue Board on April 17, 2002 to fill the
vacancy created by Jeffrey Walkers resignation from the
Board. From April 2000 to February 2002 Mr. Armstrong was
Vice President of Operations at Internet Capital Group. Prior to
joining ICG, from October 1999 to February 2000, he was
President and CEO of CMPnet, a provider of web-based
applications and services for technology buyers and channel
resellers formed out of the Internet properties of CMP Media.
From November 1996 to April 1999 he was Senior Vice President of
Sales and Marketing at Broadbase Software. From August 1995 to
November 1996 he was Vice President and General Manager of the
Server Products group at Sybase. He has also served as the Vice
President of the Enterprise Solutions Group at NCR and during
1985 to 1992 served in a variety of positions at Teradata.
Mr. Armstrong has a Bachelors Degree in Computer
Science from the University of California at Berkeley.

Section 16(a) Beneficial Ownership
Reporting Compliance

The members of the board of directors, our
executive officers and persons who hold more than 10% of our
outstanding common stock are subject to the reporting
requirements of Section 16(a) of the Securities Exchange
Act of 1934, as amended, which require them to file reports with
respect to their ownership of the common stock and their
transactions in such common stock. Based upon (i) the
copies of Section 16(a) reports which we received from such
persons for their 2002 transactions in the common stock and
their common stock holdings, and (ii) the written
representations received from one or more of such persons that
no annual Form 5 reports were required to be filed by them
for 2002, we believe that the executive officers and the board
members complied with all their reporting requirements under
Section 16(a) for 2002.




Item 11. Executive
Compensation

The following table sets forth compensation
awarded to, earned by, or paid to each individual who served
(1) as chief executive officer of Accrue for the fiscal
year ended March 30, 2002 and (2) each of the four
most highly compensated individuals who were serving as
executive officers of the Company on March 30, 2002 whose
salary and bonus exceeded $100,000 and (3) additional
individuals who would have qualified under clause (2), but
for the fact that the individual was not serving as an executive
officer of Accrue at the end of 2002. The listed individuals are
referred to in this report as the Named Officers.

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SUMMARY COMPENSATION TABLE

|                                          |  |        |      |                     |  |           |         |              |  |              |        |                        |  |                  |   |  |  |  |   |  |  |  |          |   |  |  |   | 
|----------------------------------------- |  | ------ | ---- | ------------------- |  | --------- | ------- | ------------ |  | ------------ | ------ | ---------------------- |  | ---------------- | - |  |  |  | - |  |  |  | -------- | - |  |  | - | 
|                                          |  |        |      |                     |  |           |         |              |  |              |        |                       
|                                          |  |        |      |                     |  |           |         |              |  |              |        | Long-Term Compensation
|                                          |  |        |      |                     |  |           |         |              |  |              |        | Awards/Stock Options  
|                                          |  |        |      |                     |  |           |         |              |  |             
|                                          |  |        |      | Annual Compensation |  | Other     |         | Restricted   |  | Securities   |        |                       
|                                          |  | Fiscal |      |                     |  | Annual    |         | Stock        |  | Underlying   |        | All Other             
|Name and Principal Position               |  | Year   |      | Salary ($)          |  | Bonus ($) |         | Compensation |  | Award(s) ($) |        | Options (#)            |  | Compensation ($)
|                                          |  |        |      |                     |  |           |         |              |  |              |        |                        |  |                 
|Jeffrey Walker(1)                         |  |        | 2002 |                     |  | $         | 338,786 |              |  |              |       |                        |  |                  |  |  |  |  |  |  |  |  | 900,000  |   |  |  |  | 
|President and
    Chief Executive Officer |  |        |      |                     |  |           |         |              |  |              |        |                        |  |                  |   |  |  |  |   |  |  |  |          |   |  |  |   | 
|Jonathan Becher(2)                        |  |        | 2002 |                     |  | $         | 207,374 |              |  |              |       |                        |  |                  |  |  |  |  |  |  |  |  | (144,690 | ) |  |  |  | 
|Vice President Strategy and               |  |        | 2001 |                     |  | $         | 204,794 |              |  |              |       |                        |  |                  |  |  |  |  |  |  |  |  | 150,000  |   |  |  |  | 
|and Corporate Development                 |  |        | 2000 |                     |  | $         | 57,948  |              |  |              |       |                        |  |                  |  |  |  |  |  |  |  |  | 94,690   |   |  |  |  | 
|Tom Lefort(3)                             |  |        | 2002 |                     |  | $         | 207,782 |              |  |              |       |                        |  |                  |  |  |  |  |  |  |  |  | (110,000 | ) |  |  |  | 
|Vice President Development                |  |        | 2001 |                     |  | $         | 94,391  |              |  |              |       |                        |  |                  |  |  |  |  |  |  |  |  | 212,000  |   |  |  |  | 
|John DAlbis(4)                           |  |        | 2002 |                     |  | $         | 185,156 |              |  |              |       |                        |  |                  |  |  |  |  |  |  |  |  | (110,000 | ) |  |  |  | 
|Chief Technical Officer                   |  |        | 2001 |                     |  | $         | 90,144  |              |  |              |       |                        |  |                  |  |  |  |  |  |  |  |  | 212,000  |   |  |  |  | 
|Prashant K. Karnik(5)                     |  |        | 2002 |                     |  | $         | 166,847 |              |  | $            | 13,198 |                        |  |                  |  |  |  |  |  |  |  |  | 150,000  |   |  |  |  | 
|Vice President Professional Services      |  |        |      |                     |  |           |         |              |  |              |        |                        |  |                  |   |  |  |  |   |  |  |  |          |   |  |  |   | 
|Denise Senter-Loyola(6)                   |  |        | 2002 |                     |  | $         | 163,476 |              |  |              |       |                        |  |                  |  |  |  |  |  |  |  |  | 125,000  |   |  |  |  | 
|Vice President-Sales and Marketing        |  |        |      |                     |  |           |         |              |  |              |        |                        |  |                  |   |  |  |  |   |  |  |  |          |   |  |  |   | 
|Greg Carson(7)                            |  |        | 2002 |                     |  | $         | 86,424  |              |  |              |       |                        |  |                  |  |  |  |  |  |  |  |  | 280,000  |   |  |  |  | 
|Chief Financial Officer                   |  |        |      |                     |  |           |         |              |  |              |        |                        |  |                  |   |  |  |  |   |  |  |  |          |   |  |  |   | 
|Richard DAngelo(8)                       |  |        | 2002 |                     |  | $         | 78,460  |              |  | $            | 25,000 |                        |  |                  |  |  |  |  |  |  |  |  | 250,000  |   |  |  |  | 
|Vice President Sales                      |  |        |      |                     |  |           |         |              |  |              |        |                        |  |                  |   |  |  |  |   |  |  |  |          |   |  |  |   | 
|Gregory Walker(9)                         |  |        | 2002 |                     |  | $         | 74,562  |              |  | $            | 50,000 |                        |  |                  |   |  |  |  |   |  |  |  |         |   |  |  |   | 
|Former CEO                                |  |        | 2001 |                     |  | $         | 200,233 |              |  |              |       |                        |  |                  |  |  |  |  |  |  |  |  |         |   |  |  |  | 
|                                          |  |        | 2000 |                     |  | $         | 155,000 |              |  |              |       |                        |  |                  |   |  |  |  |   |  |  |  | 260,000  |   |  |  |   | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Jeffrey Walker became President and Chief
    Executive Officer in April 2001. Mr. Walkers
    compensation included a base salary of $350,000 and an annual
    bonus of up to $150,000 per annum. His salary for fiscal year
    2002 reflects the impact of a 5% salary reduction for 3 months
    during fiscal year 2002. No bonus was earned for the fiscal year
    ended March 31, 2002. Mr. Walkers employment was
    terminated in April 2002. Under the terms of his severance
    agreement, Mr. Walker will receive severance payments equal
    to six months salary, or $175,000, and the Company will
    pay his post-employment benefit costs for a period of six
    months. These payments will be made in fiscal 2003. The Company
    has retained Mr. Walker as a consultant for the period
    April 19, 2002 through October 19, 2002.
|   
|(2) | Jonathan Becher joined the Company as Vice
    President of Product Strategy in January 2000 in connection with
    our acquisition of NeoVista, and was promoted to Senior Vice
    President of Corporate Development and Strategy in March 2001.
    In March 2002, Mr. Becher tendered options covering 144,690
    shares in connection with the companys stock option
    exchange program. During April 2002, Mr. Becher was
    appointed Interim President and Chief Executive Officer. The
    Company reduced his base salary by 10% as a part of an expense
    reduction program in April 2002.                                                                                                                                                                                                                                                      
|   
|(3) | Tom Lefort joined the Company as Vice President
    of Development in September 2000 in connection with our
    acquisition of Pilot. On an annual basis, his salary for fiscal
    year 2001 would have been $190,000. In March 2002,
    Mr. Lefort tendered options covering 110,000 shares in
    connection with the companys stock option exchange
    program. During April 2002, the Company reduced his base salary
    by 10% as a part of an expense reduction program.                                                                                                                                                                                                                                                                                                                                                                                
|   
|(4) | John DAlbis joined the Company as Vice
    President of Development in September 2000 in connection with
    our acquisition of Pilot and was promoted to Chief Technical
    Officer in November 2001. On an annual basis, his salary for
    fiscal year 2001 would have been $173,000. In March 2002,
    Mr. DAlbis tendered options covering 110,000 shares
    in connection with the Companys Stock Option exchange
    program. During April 2002, the Company reduced his base salary
    by 10% as a part of an expense reduction program. During May
    2002, Mr. DAlbis joined Pilot Software Acquisition
    Corp. in connection with the Companys sale of assets to
    Pilot Software Acquisition Corp.                                                                                                                                       

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | Prashant K. Karnik became Vice President of
    Professional Services in June 2001. On an annual basis,
    Mr. Karniks salary for the fiscal year ended
    March 30, 2002 would have been $210,000. Mr. Karnik
    also has an incentive bonus plan totaling 30% of base salary at
    100% achievement. During April 2002, the Company reduced his
    base salary by 10% as a part of an expense reduction program.                                                                                                                                 
|   
|(6) | Denise Senter-Loyola became Vice President of
    Marketing in June 2001 and was promoted to Vice President of
    Sales and Marketing in April 2002. On an annual basis,
    Ms. Senter-Loyolas salary for the fiscal year ended
    March 30, 2002 would have been $185,000.
    Ms. Senter-Loyola also has an incentive bonus plan totaling
    10% of base salary at 100% achievement. No bonus was earned
    during fiscal year 2002. During April 2002, the Company reduced
    her base salary by 10% as a part of an expense reduction program.
|   
|(7) | Gregory Carson became Chief Financial Officer in
    November 2001. On an annual basis, Mr. Carsons salary
    for the fiscal year ended March 30, 2002 would have been
    $225,000. Mr. Carson also has an incentive bonus plan
    totaling 30% of base salary at 100% achievement. No bonus was
    earned during fiscal year 2002. During April 2002, the Company
    reduced his base salary by 10% as a part of an expense reduction
    program.                                                                                                
|   
|(8) | Richard DAngelo became Vice President of
    Sales in November 2001. On an annual basis,
    Mr. DAngelos salary for the fiscal year ended
    March 30, 2002 would have been $200,000.
    Mr. DAngelo also had an incentive bonus plan totaling
    $150,000 at 100% achievement. One third of the bonus was
    guaranteed, and payable during the first four months of
    employment. During April 2002, Mr. DAngelos
    employment with the Company terminated.                                                                             
|   
|(9) | Greg Walker served as Chief Financial Officer of
    the Company from April 1999 to April 2001. In addition to those
    duties, he served as interim Chief Executive Officer from
    January 15, 2001 to April 2, 2001. Mr. Walker
    resigned from the Company on April, 30, 2001, but thereafter
    provided consulting services to the Company under an agreement
    that expired on October 31, 2001.                                                                                                                                           

STOCK OPTION GRANTS IN LAST FISCAL
YEAR

The following table provides certain information
with respect to stock options granted to the Named Officers in
the last fiscal year. In addition, as required by Securities and
Exchange Commission rules, the table sets forth the hypothetical
gains that would exist for the options based on assumed rates of
annual compound stock price appreciation during the option term.

|                        |  |                    |         |                      |  |              |       |                      |  |                        |        |     |  |  |           |  |  |  |         |  |  |  |         | 
|----------------------- |  | ------------------ | ------- | -------------------- |  | ------------ | ----- | -------------------- |  | ---------------------- | ------ | --- |  |  | --------- |  |  |  | ------- |  |  |  | ------- | 
|                        |  |                    |         |                      |  |              |       |                     
|                        |  |                    |         | Individual Grants(1) |  |              |       | Potential Realizable
|                        |  |                    |         |                      |  |              |       | Value at Assumed    
|                        |  |                    |         | Percent of           |  |              |       |                      |  | Annual Rates of Stock 
|                        |  | Number of          |         | Total Options        |  |              |       |                      |  | Price Appreciation for
|                        |  | Securities         |         | Granted to           |  | Exercise or  |       |                      |  | Option Term (2)       
|                        |  | Underlying Options |         | Employees in         |  | Base Price   |       | Expiration           |  |                       
|Name                    |  | Granted (#)        |         | Fiscal Year(3)       |  | ($/Share)(4) |       | Date                 |  | 5%                     |        | 10%
|                        |  |                    |         |                      |  |              |       |                      |  |                        |        |    
|Jeffrey Walker(5)       |  |                    | 900,000 |                      |  |              | 36.6% |                      |  | $                      | 0.2188 |     |  |  | 4/2/2011  |  |  |  | 123,842 |  |  |  | 313,840 | 
|Prashant K. Karnik(6)   |  |                    | 150,000 |                      |  |              | 6.1%  |                      |  | $                      | 0.64   |     |  |  | 6/2/2011  |  |  |  | 60,374  |  |  |  | 152,999 | 
|Denise Senter-Loyola(7) |  |                    | 125,000 |                      |  |              | 5.1%  |                      |  | $                      | 0.64   |     |  |  | 6/28/2011 |  |  |  | 50,312  |  |  |  | 127,499 | 
|Richard DAngelo(8)     |  |                    | 250,000 |                      |  |              | 10.2% |                      |  | $                      | 0.39   |     |  |  | 11/2/2011 |  |  |  | 61,317  |  |  |  | 155,390 | 
|Gregory Carson(9)       |  |                    | 280,000 |                      |  |              | 11.4% |                      |  | $                      | 0.39   |     |  |  | 11/2/2011 |  |  |  | 68,675  |  |  |  | 174,037 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | No stock appreciation rights were granted to the
    Named Officers in the last fiscal year. Options generally vest
    either 25% after the first year of service and ratably each
    month over the remaining 36-month period, or monthly over
    48 months, 36 months or 24 months. The options
    have a 10-year term, but are subject to earlier termination in
    connection with termination of employment. In the event of
    certain change-in-control transactions, options held by officers
    of the Company who are terminated without cause within three
    months thereafter will be exercisable to the extent of the
    number of shares that would otherwise vest if such officers
    remained employed by the Company or its successors for one year
    after the effective

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| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | date of the transaction. No options were granted
    to Messrs. Becher, Lefort, DAlbis or Greg Walker
    during fiscal year 2002.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | The potential realizable value illustrates value
    that might be realized upon exercise of the options immediately
    prior to the expiration of their terms, assuming the specified
    compounded rates of appreciation of the market price per share
    for the date of grant to the end of the option term. Actual
    gains, if any, on stock option exercises are dependent upon a
    number of factors, including the future performance of the
    Common Stock and the timing of option exercises, as well as the
    optionees continued employment throughout the vesting
    period. There can be no assurance that the amounts reflected in
    this table will be achieved.
|   
|(3) | The Company granted stock options representing
    2,459,625 shares to employees in the last fiscal year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(4) | The exercise price may be paid in cash, in shares
    of Common Stock valued at fair market value on the exercise date
    or through a cashless exercise procedure involving a same-day
    sale of the purchased shares. The Company may also finance the
    option exercise by loaning the optionee sufficient funds to pay
    the exercise price for the purchased shares and the federal and
    state income tax liability incurred by the optionee in
    connection with such exercise.                                                                                                                                                                                              
|   
|(5) | Mr. Walkers options vest at the rate
    of 2.78% of the shares monthly, except that
    Mr. Walkers outstanding options will cease vesting on
    October 19, 2002 or earlier if Mr. Walker ceases to be
    engaged as a consultant to the Company. In the event that
    Mr. Walkers employment is terminated without cause
    and in connection with a change of control of the Company, up to
    100% of the remaining unvested shares will vest. If he is
    terminated without cause not in connection with a change of
    control, his options will continue to vest for an additional six
    months.                                                                          
|   
|(6) | Mr. Karniks options vest at the rate
    of 33% of the shares after one year from commencement of
    employment, and 2.78% of the shares monthly thereafter. In the
    event Mr. Karniks employment is terminated without
    cause as a result of a change in control, 25% of the unvested
    shares will vest.                                                                                                                                                                                                                                                                                                                                                                          
|   
|(7) | Ms. Senter-Loyolas options vest at the
    rate of 33% of the shares after one year from commencement of
    employment, and 2.78% of the shares monthly thereafter. In the
    event Ms. Senter-Loyolas employment is terminated
    without cause as a result of a change in control, 25% of the
    unvested shares will vest.                                                                                                                                                                                                                                                                                                                                                            
|   
|(8) | Mr. DAngelos options vest at the
    rate of 33% of the shares after one year from commencement of
    employment, and 2.78% of the shares monthly thereafter.
    Mr. DAngelos employment terminated within one
    year of employment, so no options vested.                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(9) | Mr. Carsons options vest at the rate
    of 33% of the shares after one year from commencement of
    employment, and 2.78% of the shares monthly thereafter. In the
    event Mr. Carsons employment is terminated without
    cause as a result of a change in control, 100,000 of the
    unvested shares will vest, plus 50% of any remaining unvested
    shares will vest.                                                                                                                                                                                                                                                                                                             

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AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES

The following table provides summary information
concerning the shares of Common Stock acquired in the year ended
March 30, 2002, the value realized upon exercise of stock
options during the fiscal year ended March 30, 2002, and
the number and value of unexercised options with respect to each
of the Named Officers as of March 30, 2002. The value of
unexercised options was calculated by determining the difference
between the fair market value of the underlying Common Stock on
March 30, 2002 and the exercise price.

|                     |  |                 |   |                |  |                                |   |                                   |  |  |          |         |  |  |          |         
|-------------------- |  | --------------- | - | -------------- |  | ------------------------------ | - | --------------------------------- |  |  | -------- | ------- |  |  | -------- | --------
|                     |  |                 |   |                |  | Number of Securities           |   |                                  
|                     |  |                 |   |                |  | Underlying                     |   | Value of Unexercised             
|                     |  |                 |   |                |  | Unexercised Options at         |   | In-the-Money Options at          
|                     |  | Shares Acquired |   | Value Realized |  | March 30, 2002                 |   | March 30,2002                    
|Name                 |  | on Exercise (#) |   | ($)(3)         |  | (Exercisable/Unexercisable)(1) |   | ($) (Exercisable/Unexercisable(2)
|                     |  |                 |   |                |  |                                |   |                                  
|Jeffrey Walker       |  |                 |  |                |  |                                |  |                                   |  |  | 275,000/ | 625,000 |  |  | $71,830/ | $162,250
|Jonathan Becher      |  |                 |  |                |  |                                |  |                                   |  |  | 36,250/  | 63,750  |  |  | /       |        
|Tom Lefort           |  |                 |  |                |  |                                |  |                                   |  |  | 40,416/  | 61,584  |  |  | /       |        
|John DAlbis         |  |                 |  |                |  |                                |  |                                   |  |  | 40,416/  | 61,584  |  |  | /       |        
|Prashant K. Karnik   |  |                 |  |                |  |                                |  |                                   |  |  | 0/       | 150,000 |  |  | /       |        
|Denise Senter-Loyola |  |                 |  |                |  |                                |  |                                   |  |  | 0/       | 125,000 |  |  | /       |        
|Richard DAngelo     |  |                 |  |                |  |                                |  |                                   |  |  | 0/       | 250,000 |  |  | /       | $22,500 
|Gregory Carson       |  |                 |  |                |  |                                |  |                                   |  |  | 0/       | 280,000 |  |  | /       | $25,200 



---



|    |                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | No stock appreciation rights (SARs) were
    outstanding during the fiscal year ended March 31, 2000.
    Mr. Greg Walker had no options outstanding as of
    March 30, 2002.                                                                                                  
|   
|(2) | Based on $0.48 per share, the closing price of
    the Companys Common Stock on The Nasdaq Stock Market on
    the last day of trading before the fiscal years end,
    March 28, 2002, less the exercise price of the options.                                               
|   
|(3) | Value realized is calculated based on the closing
    price of the Companys Common Stock as reported on The
    Nasdaq Stock Market on the date of exercise minus the exercise
    price of the option and does not necessarily indicate that the
    optionee sold such stock.

DIRECTOR COMPENSATION

The Company has agreed to pay Bruce Armstrong a
cash performance bonus in an amount determined by the Board of
Directors in its sole discretion upon satisfactory fulfillment
of his duties as a member of the Board of Directors no later
than December 31, 2002. Such cash performance bonus is in
addition to an option to purchase 300,000 shares of the
Companys common stock which vest monthly over two years,
subject to acceleration of vesting upon achievement of certain
short-term performance objectives, as determined by the Board of
Directors. We currently do not compensate any other non-employee
member of the Board of Directors. Directors who are also our
employees do not receive additional compensation for serving as
directors.

Non-employee directors are eligible to receive
discretionary option grants and stock issuances under the 1999
Directors Option Plan. In addition, under the 1999
Directors Option Plan, each new non-employee director will
receive 50,000 options on the date the person becomes an outside
director.

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In connection with the option exchange program
implemented in March 2002, the following directors tendered
options for cancellation, and re-grant no sooner than six months
and one day from the date of cancellation:

|               |       |              |       |                  |  |  |        |        | 
|-------------- | ----- | ------------ | ----- | ---------------- |  |  | ------ | ------ | 
|Name           |       | Option Price |       | Number of Shares
|               |       |              |       |                 
|David Folkman  |       | $            | 4.14  |                  |  |  | 3,309  |       
|David Folkman  |       | $            | 21.31 |                  |  |  | 5,000  |       
|David Folkman  |       | $            | 50.81 |                  |  |  | 50,000 |       
|Max Hopper     |       | $            | 21.31 |                  |  |  | 5,000  |       
|Robert Smelick |       | $            | 21.31 |                  |  |  | 5,000  |       
|               |       |              |       |                  |  |  |        |       
|               | Total |              |       |                  |  |  |        | 68,309 | 
|               |       |              |       |                  |  |  |        |       

EMPLOYMENT ARRANGEMENTS, TERMINATION OF
EMPLOYMENT ARRANGEMENTS AND CHANGE IN CONTROL
ARRANGEMENTS



| |                          
| | -------------------------
| | Jeffrey Walker Agreements

Pursuant to an offer letter dated March 8,
2001, the Company engaged Jeffrey Walker to serve as its new
Chief Executive Officer and as a Director starting on
April 2, 2001. In addition to salary and standard employee
benefits, Mr. Walkers offer included the grant of an
incentive stock option exercisable for 900,000 shares of Accrue
common stock at a purchase price of $0.2188 per share, which
option vests over 36 months and is immediately exercisable.
The option is subject to acceleration of vesting with respect
to  1/3rd of the shares subject to the option if
Mr. Walker is terminated without cause during the first
twelve months of his employment with Accrue as the result of a
change of control in connection with a merger or sale of Accrue.
If Mr. Walker is terminated without cause after the first
twelve months of his employment with Accrue as the result of a
change of control, he will receive 100% vesting of all shares
subject to the option. Additionally, if Mr. Walker is
terminated without cause, his salary, benefits and stock option
vesting will continue for six months beyond his date of
termination or until the first anniversary of his date of hire,
whichever is later. The Company agreed to grant Mr. Walker
a full recourse loan for $196,920 to enable him to early
exercise the option. At March 30, 2002, no money had been
loaned to Mr. Walker.

On May 1, 2002, the Company and Jeffrey
Walker entered into a Separation Agreement and Mutual Release in
connection with the termination of Mr. Walkers
employment as Accrues President and Chief Executive
Officer, effective April 17, 2002. Pursuant to this
Agreement, Mr. Walker will receive severance payments equal
to his regular base salary (less applicable tax withholding) for
six months following his termination. The Company has also
retained Mr. Walker as a consultant for the period from
April 19, 2002 through October 19, 2002 (the
Consulting Period) during which time the Company has agreed to
pay Mr. Walkers COBRA and other insurance premiums.
Mr. Walkers outstanding stock options for a total of
900,000 shares of the Companys common stock will continue
to vest until the end of the Consulting Period.



| |                      
| | ---------------------
| | Greg Walker Agreement

On June 12, 2001, the Company and Greg
Walker entered into a Separation Agreement and Mutual Release in
connection with the termination of Mr. Walkers
employment as Accrues Vice President of Finance and Chief
Financial Officer effective April 30, 2001. Pursuant to
this Agreement, Mr. Walker was paid a lump sum bonus of
$50,000 and received severance payments equal to his regular
base salary (less applicable tax withholding) for six months
following his termination. The Company also retained
Mr. Walker as a consultant for the period from May 1,
2001 through October 31, 2001 (the Consulting Period)
during which time the Company agreed to pay
Mr. Walkers COBRA premiums. Mr. Walkers
outstanding stock options for a total of 290,000 shares of the
Companys common stock continued to vest until the end of
the Consulting Period.

54



---



##### Table of Contents





| |                           
| | --------------------------
| | Richard DAngelo Agreement

The Company and Richard DAngelo entered
into a General Release, effective April 18, 2002, in
connection with the termination of Mr. DAngelos
employment with the Company. Pursuant to this Agreement,
Mr. DAngelo will receive severance payments equal to
his regular base salary (less tax withholdings) for two weeks
following his termination.



| |                          
| | -------------------------
| | Bruce Armstrong Agreement

On April 17, 2002, the Company and Bruce
Armstrong entered into an agreement defining the terms of
Mr. Armstrongs appointment as a member of the
Companys Board of Directors. Pursuant to the terms of the
agreement, Mr. Armstrong will receive a nonqualified stock
option to purchase 300,000 shares of the Companys Common
Stock that will vest monthly over two years, subject to
acceleration of vesting upon achievement of certain short-term
performance objectives, as determined by the Board of Directors.
In addition, the company agreed to pay Mr. Armstrong a cash
performance bonus in an amount determined by the Board of
Directors in its sole discretion upon satisfactory fulfillment
of his duties as a member of the Board of Directors no later
than December 31, 2002.



| |                        
| | -----------------------
| | Acceleration of Vesting

Other than as specifically set forth herein,
options granted to employees and officers under Accrues
1996 Stock Plan and options granted to directors under
Accrues 1999 Directors Stock Option Plan are subject to
acceleration of vesting upon a change of control in connection
with a merger or sale of Accrue with respect to 25% of the
shares subject to the option grant if the option holder is
terminated without cause within three months after the change of
control.

Compensation Committee Interlocks and Insider
Participation

The members of the compensation committee of
Accrues board during the fiscal year ended March 30,
2002 were Messrs. Hopper and Smelick. Neither
Mr. Hopper nor Mr. Smelick has at any time been an
officer or employee of Accrue. No member of the committee or
executive officer of the Company has a relationship that would
constitute an interlocking relationship with executive officers
or directors of another entity. During May 2002,
Mr. Armstrong was appointed to the Compensation Committee.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION

The following is the report of the Compensation
Committee of the Board of Directors describing the compensation
policies, and the rationale therefore, with respect to the
compensation paid to the Companys executive officers for
the fiscal year ended March 30, 2002.



| |                                          
| | -----------------------------------------
| | Purpose of the Compensation
    Committee

The Compensation Committee of the Board of
Directors (the Committee) is responsible for
determining compensation levels for the executive officers for
each fiscal year based on a consistent set of policies and
procedures. The Committee reviews and approves all executive
target compensation (base and bonus) and the plan by which bonus
in excess of target may be paid to executive officers. In the
case of the Companys President and Chief Executive
Officer, principal sales executive and certain other members of
senior management, the Committee formulates an individual bonus
plan based primarily upon accepted orders for the Companys
products and services and revenues.



| |                    
| | -------------------
| | Committee Structure

During the fiscal year ended March 30, 2002
(Fiscal 2002) the Committee was made up of two
independent, non-employee members of the Board of Directors:
Max D. Hopper and Robert Smelick.

55



---



##### Table of Contents





| |                                    
| | -----------------------------------
| | Objectives of the Compensation Plan

The objectives of the compensation program as
established by the Committee are: (1) to provide a means
for the Company to attract and retain high-quality executives;
(2) to tie executive compensation directly to the
Companys business and performance objectives; and
(3) to reward outstanding individual performance that
contributes to the long-term success of the Company.



| |                         
| | ------------------------
| | Elements of Compensation

Each executive officers compensation
package is comprised of three elements: (1) base
compensation, which reflects individual performance and is
designed primarily to be competitive with salary levels in a
comparative group; (2) variable or bonus compensation
payable based on the achievement of financial performance goals
and individual performance; and (3) long-term stock-based
incentive compensation, which rewards Company growth and
increased stockholder value.

Base Compensation. The base compensation for each
executive officer is determined based on consideration of the
following factors: (1) salary levels for comparable
positions in software and related companies similar in size and
business that compete with Accrue in the recruitment and
retention of senior personnel; (2) each executives
past performance relative to corporate, business group (if
applicable) and individual objectives; (3) each
executives responsibility level and objectives for the
subsequent year; and (4) compensation relative to other
executives in the Company.

Some of the companies the Committee surveyed as
part of the peer group for comparative compensation purposes are
included in the Nasdaq Computer and Data Processing Index, which
the Company has selected as the industry index for purposes of
the stock price performance graph that appears later in this
Annual Report on Form 10-K. However, this index also
includes a significant number of companies that are of greater
size than the Company, participate in different industries than
the Company or are located in different regions from the
Company, and use of index companies alone would have incorrectly
affected compensation comparisons. In selecting companies for
compensation comparison purposes, the Committee selected
companies that actually compete with the Company in seeking
executive talent. Consequently, some companies included in the
compensation comparison survey are not necessarily included in
the Nasdaq Computer and Data Processing Index.

The Company believes that the total cash
compensation for the executive officers of the Company for
Fiscal 2002 was competitive with the total cash compensation for
executive officers at companies with which the Company competes
for executives.

Variable Compensation. The Companys Fiscal
2002 bonus plan approved by the Committee set forth (1) the
size of the aggregate bonus pool for all non-commissionable
employees and executive officers and (2) the amount of
incentive bonus compensation payable to individual executive
officers (other than the Companys principal sales
executive) based on the achievement of specific performance
targets relating to accepted orders, revenue and operating
margin for the Company as a whole (and, for officers in business
units, contribution margin). An executive officers bonus
compensation may be increased based upon a qualitative
assessment of his or her performance by the President and Chief
Executive Officer, in consultation with the Board of Directors.
The bonuses payable to all such executive officers, together
with bonuses payable to all other non-commissionable employees
as a group, may not exceed the total bonus pool approved by the
Committee. For Fiscal 2002, a bonus formula was established such
that achievement of planned levels of accepted orders, revenue,
and profitability For Fiscal 2002, accepted orders, revenue and
operating margin all were below the established targets and as a
result, no bonuses were earned or paid. Bonus compensation paid
to the Companys principal and professional services
executive in Fiscal 2002 was determined under his individual
bonus plan and was adjusted downward as a result of decreased
orders for the Companys products and services and
decreased revenue during Fiscal 2002. Bonus compensation paid to
the Companys principal sales executive in Fiscal 2002 was
paid under a guarantee commitment made in connection with his
offer of employment. Total bonus compensation for the Named
Officers is shown in the Summary Compensation Table. The
Committee believes that these levels of compensation are a fair
reflection of the performance of the named individuals.

56



---



##### Table of Contents



Long-Term Incentive Compensation.

Long-term compensation provided to the
Companys executives has been in the form of stock options.
The Committee believes that equity-based compensation closely
aligns the interests of executive officers with those of
stockholders by providing an incentive to manage the Company
with a focus on long-term strategic objectives set by the Board
of Directors relating to growth and stockholder value. Stock
options are granted under the 1996 Stock Plan according to
guidelines that take into account the executives
responsibility level, comparison with comparable awards to
individuals in similar positions in the industry, the
Companys long-term objectives for maintaining and
expanding technological leadership through product development
and growth, expected Company performance, the executives
performance and contribution during the last fiscal year and the
executives existing holdings of unvested stock options.
However, the Committee does not strictly adhere to these factors
in all cases and will vary the size of the grant made to each
executive officer as the particular circumstances warrant. Each
grant allows the officer to acquire shares of the Companys
Common Stock at the fair market value in effect on the date of
grant.

The options vest in a series of installments over
four-year, three-year or two-year periods, contingent upon the
executives continued employment with the Company.
Accordingly, the option will provide a return to the executive
only if he or she remains in the Companys employ, and then
only if the market price of the Common Stock appreciates over
the option term. Subsequent grants may be made to officers when
the Committee believes that the officer has demonstrated greater
potential, achieved more than originally expected, or assumed
expanded responsibilities. Additionally, subsequent grants may
be made to remain competitive with similar companies.

The Committee evaluated the performance of the
executive officers against the strategic objectives for Fiscal
2002 set by the Board and concluded that such performance
warrants the level of long-term compensation awarded them as set
forth in the Summary Compensation Table. The Committee typically
re-examines long-term compensation levels each year.



| |                                                         
| | --------------------------------------------------------
| | President and Chief Executive Officers
    Compensation

Compensation for the President/ Chief Executive
Officer was determined in connection with his offer of
employment in March 2001 by a process similar to that discussed
above for executive officers. Mr. Walkers base
compensation was competitive with base compensation levels for
chief executive officers of the companies with which the Company
competes for executives.

As was the case with the other executive
officers, Mr. Walkers bonus eligibility was
calculated under a formula based on accepted orders, revenue and
profitability, Mr. Walker was also eligible for an
increased bonus based on a qualitative assessment of his
performance by the Board of Directors. For Fiscal 2002, accepted
orders, revenue and profitability all were below the established
target. Based on this and the Companys earnings and
revenue growth during Fiscal 2002 as compared to the
Companys budget targets, Mr. Walkers bonus was
zero for Fiscal 2002. In determining the amount of long-term
compensation to grant to Mr. Walker the Committee
considered the same factors used to determine grants for other
executive officers set forth above. The Committee believes that
the overall level of compensation is a fair reflection of
Mr. Walkers performance for the year.

Mr. Walkers employment as Chief
Executive Officer of the Company terminated effective at the
close of business on April 17, 2002, and Jonathan Becher,
the Companys Senior Vice President of Corporate
Development and Strategy, was named to serve as interim
President and Chief Executive Officer until a new Chief
Executive Officer is hired.



| |                                                
| | -----------------------------------------------
| | Tax Deductibility of Executive
    Compensation

Section 162(m) of the Internal Revenue Code
(the Code) places a $1 million limit on the tax
deductibility of cash compensation paid to the seven most highly
compensated executive officers of the Company. None of the
compensation paid to the Companys executive officers in
Fiscal 2000 was subject to Section 162(m). Under the 1996
Plan, compensation deemed paid to an executive officer when he
exercises

57



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##### Table of Contents



an outstanding option under the Plan will qualify
as performance-based compensation which will not be subject to
the $1 million limitation.


COMPENSATION COMMITTEE

Max D. Hopper


Robert Smelick





Stock Performance Graph

Notwithstanding anything to the contrary set
forth in any of the Companys filings under the Securities
Act of 1933 or the Securities Exchange Act of 1934 that might
incorporate future filings, including this Annual Report on
Form 10-K, in whole or in part, the following Stock
Performance Graph which follows shall not be deemed to be
incorporated by reference into any such filing

The following graph compares the cumulative total
stockholder return data for the Companys stock since
July 30, 1999 (the date on which the Companys stock
was first registered under Section 12 of the Securities
Exchange Act of 1934, as amended) to the cumulative return over
such period of (i) The Nasdaq National Market Composite
Index and (ii) the Nasdaq Computer Index. The graph assumes
that $100 was invested on July 30, 1999, the date on which
the Companys common stock was first offered to the public,
in the Common Stock of the Company and in each of the
comparative indices. The graph further assumes that such amount
was initially invested in the Common Stock of the Company at a
per share price of $10.00, the price to which such stock was
first offered to the public by the Company on the date of its
initial public offering, and reinvestment of any dividends. The
stock price performance on the following graph is not
necessarily indicative of future stock price performance.

COMPARISON OF 32 MONTH CUMULATIVE TOTAL
RETURN*

AMONG ACCRUE SOFTWARE, INC., THE NASDAQ
NATIONAL MARKET COMPOSITE INDEX AND THE NASDAQ COMPUTER
INDEX


(PERFORMANCE CHART)



---



|  |                                                                                                                                    
|- | -----------------------------------------------------------------------------------------------------------------------------------
|* | $100 invested on 7/30/99 in stock or in indices
    including reinvestment of dividends. Fiscal year ended on or
    near March 31.

58



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##### Table of Contents



|         |  |                |     |                  |  |                 |     |  |  |  |     | 
|-------- |  | -------------- | --- | ---------------- |  | --------------- | --- |  |  |  | --- | 
|         |  |                |     | Nasdaq National  |  |                
|         |  | Accrue         |     | Market Composite |  | Nasdaq Computer
|Date     |  | Software, Inc. |     | Index            |  | Index          
|         |  |                |     |                  |  |                
|7/30/99  |  |                | 100 |                  |  |                 | 100 |  |  |  | 100 | 
|9/30/99  |  |                | 185 |                  |  |                 | 104 |  |  |  | 110 | 
|12/31/99 |  |                | 444 |                  |  |                 | 154 |  |  |  | 170 | 
|3/31/00  |  |                | 376 |                  |  |                 | 173 |  |  |  | 198 | 
|6/30/00  |  |                | 291 |                  |  |                 | 150 |  |  |  | 172 | 
|9/29/00  |  |                | 98  |                  |  |                 | 139 |  |  |  | 156 | 
|12/29/00 |  |                | 21  |                  |  |                 | 94  |  |  |  | 95  | 
|3/30/01  |  |                | 2   |                  |  |                 | 70  |  |  |  | 65  | 
|6/30/01  |  |                | 4   |                  |  |                 | 82  |  |  |  | 79  | 
|9/29/01  |  |                | 2   |                  |  |                 | 57  |  |  |  | 49  | 
|12/29/01 |  |                | 5   |                  |  |                 | 75  |  |  |  | 73  | 
|3/30/02  |  |                | 4   |                  |  |                 | 70  |  |  |  | 66  | 






|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management

The following table sets forth information that
has been provided to the Company with respect to beneficial
ownership of shares of the Companys common stock as of
May 31, 2002 for (i) each person who is known by the
Company to own beneficially more than five percent of the
outstanding shares of common stock, (ii) each director of
the Company, (iii) each of the executive officers named in
the Summary Compensation Table of this Annual Report on
Form 10-K, and (iv) all directors and executive
officers of the Company as a group.

Except as otherwise noted, the address of each
person listed in the table is c/o Accrue Software, Inc.,
48634 Milmont Dr., Fremont, California 94538-7353.

The percent of beneficial ownership for each
stockholder is based on 30,074,620 shares of common stock
outstanding as of May 31, 2002.

|                                                                                         |  |                              |           |                  |  |  |       | 
|---------------------------------------------------------------------------------------- |  | ---------------------------- | --------- | ---------------- |  |  | ----- | 
|                                                                                         |  |                             
|                                                                                         |  | Shares Beneficially Owned(1)
|                                                                                         |  |                             
|Name and Address of Beneficial Owner                                                     |  | Number(2)                    |           | Percent of Total
|                                                                                         |  |                              |           |                 
|Organic Holdings, Inc.(3)   510 Third
    Street, Suite 540  San Francisco,
    CA 94107 |  |                              | 1,556,890 |                  |  |  | 5.18% | 
|Jeffrey S. Walker(4)                                                                     |  |                              | 449,000   |                  |  |  | 1.49% | 
|Yorgen Edholm(5)                                                                         |  |                              | 66,666    |                  |  |  | *     | 
|David Folkman(6)                                                                         |  |                              | 47,500    |                  |  |  | *     | 
|Max. D. Hopper(7)                                                                        |  |                              | 137,500   |                  |  |  | *     | 
|Zev Laderman(8)                                                                          |  |                              | 58,333    |                  |  |  | *     | 
|Jonathan Nelson(9)                                                                       |  |                              | 1,594,390 |                  |  |  | 5.30% | 
|Robert Smelick(10)                                                                       |  |                              | 1,758,201 |                  |  |  | 5.85% | 
|Jonathan Becher(11)                                                                      |  |                              | 57,239    |                  |  |  | *     | 
|Tom Lefort(12)                                                                           |  |                              | 54,971    |                  |  |  | *     | 
|John DAlbis(13)                                                                         |  |                              | 50,694    |                  |  |  | *     | 
|Prashant K. Karnik(14)                                                                   |  |                              | 52,291    |                  |  |  | *     | 
|Denise Senter-Loyola(15)                                                                 |  |                              | 36,438    |                  |  |  | *     | 

59



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##### Table of Contents



|                                                                                                         |  |                              |           |                  |  |  |        | 
|-------------------------------------------------------------------------------------------------------- |  | ---------------------------- | --------- | ---------------- |  |  | ------ | 
|                                                                                                         |  |                             
|                                                                                                         |  | Shares Beneficially Owned(1)
|                                                                                                         |  |                             
|Name and Address of Beneficial Owner                                                                     |  | Number(2)                    |           | Percent of Total
|                                                                                                         |  |                              |           |                 
|Richard DAngelo(16)                                                                                     |  |                              | 7,500     |                  |  |  | *      | 
|Gregory S. Carson(17)                                                                                    |  |                              | 10,000    |                  |  |  | *      | 
|All executive officers and directors as a
    group(18) (13 persons)                                     |  |                              | 4,380,743 |                  |  |  | 14.39% | 
|5% Stockholder                                                                                           |  |                              |           |                  |  |  |        | 
|Vertex Management &
    Affiliates   77 Science Park
    Drive  #02-15 Cintech III  Singapore
    118256 |  |                              | 2,005,000 |                  |  |  | 6.67%  | 



---



| |   |                                                                     
| | - | --------------------------------------------------------------------
| | * | Less than one percent of the outstanding shares
    of common stock.



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | The persons named in this table have sole voting
    and investment power with respect to all shares of common stock
    shown as beneficially owned by them, subject to community
    property laws where applicable and except as indicated in the
    other footnotes to this table.                                                                                                                                                                                                                                                                                                                                              
|
| | (2) | In computing the number of shares beneficially
    owned by a person and the percentage ownership of that person,
    shares of common stock subject to options or warrants held by
    that person that are currently exercisable or exercisable within
    60 days after May 31, 2002 are deemed outstanding and
    shares of common stock that may be purchased within 60 days
    after May 31, 2002 pursuant to the Companys Employee
    Stock Purchase Plan are also deemed outstanding. Such shares,
    however, are not deemed outstanding for the purpose of computing
    the percentage ownership of any other person.
|
| | (3) | Organic Holdings, Inc., the holder of 1,556,890
    shares, was previously known as Organic Online, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | (4) | The beneficial ownership for Jeffrey Walker is
    comprised of 74,000 shares owned plus 375,000 shares issuable
    upon the exercise of stock options held by Mr. Walker that
    are currently exercisable or exercisable within 60 days of
    May 31, 2002.                                                                                                                                                                                                                                                                                                                                                                     
|
| | (5) | The beneficial ownership for Yorgen Edholm is
    comprised of 66,666 shares issuable upon the exercise of stock
    options held by Mr. Edholm that are currently exercisable
    or exercisable within 60 days of May 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | (6) | The beneficial ownership for David Folkman is
    comprised of 10,000 shares owned plus 37,500 shares issuable
    upon the exercise of stock options held by Mr. Folkman that
    are currently exercisable or exercisable within 60 days of
    May 31, 2002.                                                                                                                                                                                                                                                                                                                                                                      
|
| | (7) | The beneficial ownership for Max Hopper is
    comprised of 100,000 shares of common stock and 37,500 shares
    issuable upon the exercise of stock options held by
    Mr. Hopper that are currently exercisable or exercisable
    within 60 days of May 31, 2002.                                                                                                                                                                                                                                                                                                                                                                
|
| | (8) | The beneficial ownership for Zev Laderman is
    comprised of 58,333 shares issuable upon the exercise of stock
    options held by Mr. Laderman that are currently exercisable
    or exercisable within 60 days of May 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | (9) | The beneficial ownership for Jonathan Nelson is
    comprised of 1,556,890 shares held by Organic Holdings, Inc. and
    37,500 shares issuable upon the exercise of stock options held
    by Mr. Nelson that are currently exercisable or exercisable
    within 60 days of May 31, 2002. Mr. Nelson is the
    Chairman of the Board of Directors of Organic, Inc., a
    subsidiary of Organic Holdings, Inc., and disclaims beneficial
    ownership of the shares held by Organic Holdings, Inc. except to
    the extent of his pecuniary interest in these shares.                                                           



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | The beneficial ownership for Robert Smelick is
    comprised of 108,520 shares held by Sterling Payot Capital,
    Inc., 27,462 shares held by Sterling Payot Management, Inc.,
    29,835 shares held by Red Fox Investment Partners, 1,529,884
    shares held either by Robert Smelick or by certain family
    members or family trusts over which Mr. Smelick has voting
    control, and 62,500 shares issuable upon the exercise of stock
    options held by Mr. Smelick that are currently exercisable
    or exercisable within 60 days of May 31, 2002.
    Mr. Smelick is managing director of Sterling Payot
    Management, Inc., the general partner of Sterling Payot Capital
    L.P., and a manager of Red Fox Investment Partners.
    Mr. Smelick

60



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##### Table of Contents



|     |                                                                                                                                                                                                                                                                                                         
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | disclaims beneficial ownership of the shares held
    by Sterling Payot Capital, Inc., Sterling Payot Management,
    Inc., and Red Fox Investment Partners except to the extent of
    his pecuniary interest in these shares.                                                                         
|    
|(11) | The beneficial ownership for Jonathan Becher is
    comprised of 9,323 shares of common stock owned and 47,916
    shares issuable upon the exercise of stock options held by
    Mr. Becher that are currently exercisable or exercisable
    within 60 days of May 31, 2002.                          
|    
|(12) | The beneficial ownership for Tom Lefort is
    comprised of 2,000 shares of common stock owned and 52,971
    shares issuable upon the exercise of stock options held by
    Mr. Lefort that are currently exercisable or exercisable
    within 60 days of May 31, 2002.                               
|    
|(13) | The beneficial ownership for John DAlbis is
    comprised of 4,000 shares of common stock owned and 46,694
    shares issuable upon the exercise of stock options held by
    Mr. DAlbis that are currently exercisable or
    exercisable within 60 days of May 31, 2002.                            
|    
|(14) | The beneficial ownership for Prashant K. Karnik
    is comprised of 52,291 shares issuable upon the exercise of
    stock options held by Mr. Karnik that are currently
    exercisable or exercisable within 60 days of May 31,
    2002                                                               
|    
|(15) | The beneficial ownership for Denise Senter-Loyola
    is comprised of 36,458 shares issuable upon the exercise of
    stock options held by Ms. Senter Loyola that are currently
    exercisable or exercisable within 60 days of May 31,
    2002.                                                     
|    
|(16) | The beneficial ownership for Richard
    DAngelo is comprised of 7,500 shares of common stock owned.                                                                                                                                                                                                   
|    
|(17) | The beneficial ownership for Greg Carson is
    comprised of 10,000 shares of common stock owned.                                                                                                                                                                                                       
|    
|(18) | The beneficial ownership for Accrues
    executive officers and directors as a group includes 4,380,743
    shares of common stock and 911,329 shares issuable upon the
    exercise of stock options or warrants that are currently
    exercisable or exercisable within 60 days of May 31,
    2002.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

Transactions with Directors and
Officers

Pursuant to an offer letter dated March 8,
2001, the Company engaged Jeffrey Walker to serve as its new
Chief Executive Officer and as a Director starting on
April 2, 2001. In addition to salary and standard employee
benefits, Mr. Walkers offer included the grant of an
incentive stock option exercisable for 900,000 shares of Accrue
common stock at a purchase price of $0.2188 per share, which
option vests over 36 months and is immediately exercisable.
The option is subject to acceleration of vesting with respect
to  1/3rd of the shares subject to the option if
Mr. Walker is terminated without cause during the first
twelve months of his employment with Accrue as the result of a
change of control in connection with a merger or sale of Accrue.
If Mr. Walker is terminated without cause after the first
twelve months of his employment with Accrue as the result of a
change of control, he will receive 100% vesting of all shares
subject to the option. Additionally, if Mr. Walker is
terminated without cause, his salary, benefits and stock option
vesting will continue for six months beyond his date of
termination or until the first anniversary of his date of hire,
whichever is later. The Company has agreed to grant
Mr. Walker a full recourse loan for $196,920.00 to enable
him to early exercise the option. The Company agreed to grant
Mr. Walker a full recourse loan for $196,920 to enable him
to early exercise the option. At March 30, 2002, no money
had been loaned to Mr. Walker. On May 1, 2002, the
Company and Jeffrey Walker entered into a Separation Agreement
and Mutual Release in connection with the termination of
Mr. Walkers employment as Accrues President and
Chief Executive Officer, effective April 17, 2001. Pursuant
to this Agreement, Mr. Walker will receive severance
payments equal to his regular base salary (less applicable tax
withholding) for six months following his termination. The
Company has also retained Mr. Walker as a consultant for
the period from April 19, 2002 through October 19,
2002 (the Consulting Period) during which time the
Company has agreed to pay Mr. Walkers COBRA and other
insurance premiums. Mr. Walkers outstanding stock
options for a total of 900,000 shares of the Companys
common stock will continue to vest until the end of the
Consulting Period.

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On June 12, 2001, the Company and Greg
Walker entered into a Separation Agreement and Mutual Release
(the Walker Separation Agreement) in connection with
the termination of Mr. Walkers employment as
Accrues Vice President and Chief Financial Officer
effective April 30, 2001. Pursuant to the Walker Separation
Agreement, Mr. Walker was paid a lump sum bonus of $50,000
and received severance payments equal to his regular base salary
(less applicable tax withholding) for six months following his
termination. The Company also retained Mr. Walker as a
consultant for the period from May 1, 2001 through
October 31, 2001 (the Consulting Period) during
which time the Company agreed to pay Mr. Walkers
COBRA premiums. Mr. Walkers outstanding stock options
for a total of 290,000 shares of the Companys common stock
continued to vest until the end of the Consulting Period.

The Company and Richard DAngelo entered
into a General Release, effective April 18, 2002, in
connection with the termination of Mr. DAngelos
employment with the Company. Pursuant to this Agreement,
Mr. DAngelo will receive severance payments equal to
his regular base salary (less tax withholdings) for two weeks
following his termination

Pursuant to an offer letter dated May 15,
2001, the Company engaged Prashant Karnik to serve as its new
Vice President of Professional Services, starting on
June 4, 2001. In addition to salary and standard employee
benefits, Mr. Karniks offer included the grant of an
incentive stock option exercisable for 150,000 shares of Accrue
common stock at a purchase price of $0.64 per share, which
option vests over 36 months. The option is subject to
acceleration of vesting with respect to 25% of the unvested
shares subject to the option if Mr. Karnik is terminated
without cause as the result of a change of control in connection
with a merger or sale of Accrue.

Pursuant to an offer letter dated June 27,
2001, the Company engaged Denise Senter-Loyola to serve as its
new Vice President of Marketing, starting on June 27, 2001.
In addition to salary and standard employee benefits,
Ms. Senter-Loyolas offer included the grant of an
incentive stock option exercisable for 125,000 shares of Accrue
common stock at a purchase price of $0.64 per share, which
option vests over 36 months. The option is subject to
acceleration of vesting with respect to 25% of the unvested
shares subject to the option if Ms. Senter-Loyola is
terminated without cause as the result of a change of control in
connection with a merger or sale of Accrue.

Pursuant to an offer letter dated October 3,
2001, the Company engaged Gregory Carson to serve as its new
Chief Financial Officer starting on November 2, 2001. In
addition to salary and standard employee benefits,
Mr. Carsons offer included the grant of an incentive
stock option exercisable for 280,000 shares of Accrue common
stock at a purchase price of $0.39 per share, which option vests
over 36 months. The option is subject to acceleration of
vesting with respect to 100,000 shares plus 50% of any remaining
unvested shares subject to the option if Mr. Carson is
terminated without cause as the result of a change of control in
connection with a merger or sale of Accrue.

On April 17, 2002, the Company and Bruce
Armstrong entered into an agreement defining the terms of
Mr. Armstrongs appointment as a member of the
Companys Board of Directors. Pursuant to the terms of the
agreement, Mr. Armstrong will receive a nonqualified stock
option to purchase 300,000 shares of the Accrue common stock
that will vest monthly over two years, subject to acceleration
of vesting upon achievement of certain short-term performance
objectives, as determined by the Board of Directors. In
addition, the Company agreed to pay Mr. Armstrong a cash
performance bonus in an amount determined by the Board of
Directors in its sole discretion upon satisfactory fulfillment
of his duties as a member of the Board of Directors no later
than December 31, 2002.

In connection with the voluntary stock option
exchange program announced in January 2002, certain of our
officers and directors tendered outstanding stock options
previously granted with an exercise price greater than $4.13 per
share in exchange for a new stock option grant for an equal
number of shares to be granted at a future date, at least six
months and one day from the cancellation date of the exchanged
options, which will be after September 5, 2002. The
following officers and directors participated in the
Companys stock option exchange program: Jonathan Becher,
former Senior Vice President of Corporate Development and
Strategy and current President and Chief Executive Officer,
tendered options covering 144,690 shares; Tom Lefort, Vice
President of Development, tendered options covering 110,000
shares; John DAlbis, former Chief

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Technology Officer, tendered options covering
110,000 shares; David Folkman, a member of the Board of
Directors, tendered options covering 58,309 shares; Max Hopper,
a member of the Board of Directors, tendered options covering
5,000 shares; and Robert Smelick, a member of the Board of
Directors, tendered options covering 5,000 shares.


Indemnification Agreements

We have entered into indemnification agreements
with our officers and directors that contain provisions which
may require Accrue, among other things, to indemnify our
officers and directors against certain liabilities that may
arise by reason of their status or service as officers or
directors (other than liabilities arising from willful
misconduct of a culpable nature) and to advance their expenses
incurred as a result of any proceeding against them as to which
they could be indemnified.

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PART IV






|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 14. | Exhibits, Financial Statement Schedule, and
    Reports on Form 8-K

(a) The following documents are filed as
part of this Report:



| |    |                                                                                                                                                                                                                                      
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | Financial Statements and Financial Statement
    Schedule.See Index to Consolidated
    Financial Statements, Index to Supplemental Financial
    Information and Index to Financial Statement Schedule at
    Item 8 of this Report.

2. Exhibits

|        |     |                     |  |                                                                                                                                                                                                                                                                                                     |  |       |  |          |  |          |     |  |  |  |  | 
|------- | --- | ------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----- |  | -------- |  | -------- | --- |  |  |  |  | 
|        |     |                     |  |                                                                                                                                                                                                                                                                                                     |  |      
|        |     |                     |  | Incorporated by Reference                                                                                                                                                                                                                                                                           |  |      
|Exhibit |     |                     |  |                                                                                                                                                                                                                                                                                                     |  | Filed
|Number  |     | Exhibit Description |  | Form                                                                                                                                                                                                                                                                                                |  | Date  |  | Number   |  | Herewith
|        |     |                     |  |                                                                                                                                                                                                                                                                                                     |  |       |  |          |  |         
|        | 1.1 |                     |  | Underwriting Agreement dated July 29, 1999                                                                                                                                                                                                                                                          |  | S-1   |  | 5/27/99  |  |          | 1.1 |  |  |  |  | 
|        | 2.1 |                     |  | Form of Agreement and Plan of Merger and
    Reorganization dated at September 14, 1999, among Accrue
    Software, Inc., Marketwave Acquisition Corp., Marketwave
    Corporation and Shareholders of Marketwave Corporation                                                                       |  | 8-K   |  | 10/12/99 |  |          | 2.1 |  |  |  |  | 
|        | 2.2 |                     |  | Form of Agreement and Plan of Merger and
    Reorganization dated at November 17, 1999, among Accrue
    Software, Inc., NeoVista Acquisition Corp. and NeoVista
    Software, Inc.                                                                                                                 |  | 8-K   |  | 1/31/00  |  |          | 2.1 |  |  |  |  | 
|        | 2.3 |                     |  | Form of Asset Purchase Agreement dated as of
    June 30, 2000, by and between the Accrue Software, Inc.,
    Tantau Software, Inc., and Tantau Software International, Inc.                                                                                                                        |  | 8-K   |  | 7/26/00  |  |          | 2.1 |  |  |  |  | 
|        | 2.4 |                     |  | Form of Agreement and Plan of Merger dated as of
    August 24, 2000, among Accrue Software, Inc., Aviator
    Holding Corporation, Pilot Software, Inc. and the sole
    stockholder of Aviator Holding Corp.                                                                                      |  | 8-K   |  | 9/20/00  |  |          | 2.1 |  |  |  |  | 
|        | 2.5 |                     |  | Form of Asset Purchase Agreement dated as of
    May 30, 2002, by and between Accrue Software, Inc., Pilot
    Software, Inc., Marketwave Corporation, Accrue GmbH, Pilot
    Software Ltd, Thorn EMI Computer Software Ltd, Pilot Software
    Acquisition Corp. and Pilot Software Services Corp. |  | 8-K   |  | 6/13/02  |  |          | 2.1 |  |  |  |  | 
|        | 2.6 |                     |  | Asset Purchase Agreement dated as of
    June 26, 2001 among Accrue Software, Inc., NeoVista
    Software, Inc. and JDA Software Group, Inc.                                                                                                                                                        |  | 8-K   |  | 7/11/01  |  |          | 2.1 |  |  |  |  | 
|        | 3.1 |                     |  | Amended and Restated Certificate of Incorporation
    of Accrue Software, Inc.                                                                                                                                                                                                                      |  | S-1   |  | 5/27/99  |  |          | 3.1 |  |  |  |  | 
|        | 3.2 |                     |  | Amended and Restated Certificate of Incorporation
    of Accrue Software, Inc. (proposed)                                                                                                                                                                                                           |  | S-1   |  | 5/27/99  |  |          | 3.2 |  |  |  |  | 
|        | 3.3 |                     |  | Amended and Restated Bylaws of Accrue Software,
    Inc.                                                                                                                                                                                                                                            |  | S-1/A |  | 7/6/99   |  |          | 3.2 |  |  |  |  | 
|        | 4.1 |                     |  | Specimen Stock Certificate                                                                                                                                                                                                                                                                          |  | S-1/A |  | 7/20/99  |  |          | 4.1 |  |  |  |  | 
|        | 4.2 |                     |  | Form of Investor Rights Agreement, dated
    September 30, 1999, among Accrue Software, Inc. and the
    Shareholders of Marketwave Corporation                                                                                                                                                     |  | 8-K   |  | 10/12/99 |  |          | 4.1 |  |  |  |  | 
|        | 4.3 |                     |  | Marketwave Corporation 1997 Stock Option Plan                                                                                                                                                                                                                                                       |  | S-8   |  | 2/1/00   |  |          | 4.1 |  |  |  |  | 
|        | 4.4 |                     |  | NeoVista Software, Inc. 1991 Incentive Stock
    Option Plan                                                                                                                                                                                                                                        |  | S-8   |  | 2/1/00   |  |          | 4.2 |  |  |  |  | 

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|        |      |                     |  |                                                                                                                                                                                                                                                                                                                            |  |         |  |          |  |          |       |      |  |  |  | 
|------- | ---- | ------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------- |  | -------- |  | -------- | ----- | ---- |  |  |  | 
|        |      |                     |  |                                                                                                                                                                                                                                                                                                                            |  |        
|        |      |                     |  | Incorporated by Reference                                                                                                                                                                                                                                                                                                  |  |        
|Exhibit |      |                     |  |                                                                                                                                                                                                                                                                                                                            |  | Filed  
|Number  |      | Exhibit Description |  | Form                                                                                                                                                                                                                                                                                                                       |  | Date    |  | Number   |  | Herewith
|        |      |                     |  |                                                                                                                                                                                                                                                                                                                            |  |         |  |          |  |         
|        | 4.5  |                     |  | NeoVista Software, Inc. 1991 Non-Qualified Stock
    Option Plan                                                                                                                                                                                                                                                           |  | S-8     |  | 2/1/00   |  |          | 4.3   |      |  |  |  | 
|        | 4.6  |                     |  | 2000 Non-Executive Stock Option Plan                                                                                                                                                                                                                                                                                       |  | S-8     |  | 6/29/01  |  |          | 4.6   |      |  |  |  | 
|        | 4.7  |                     |  | Form of Investors Rights Agreement, dated
    as of July 14, 2000, by and between Accrue Software, Inc.
    and Tantau Software, Inc.                                                                                                                                                                                     |  | 8-K     |  | 7/26/00  |  |          | 4.1   |      |  |  |  | 
|        | 4.8  |                     |  | Form of Investor Rights Agreement, dated
    September 20, 2000, between the Accrue Software, Inc. and
    the sole stockholder of Aviator Holding Corp.                                                                                                                                                                   |  | 8-K     |  | 9/21/00  |  |          | 4.1   |      |  |  |  | 
|        | 4.9  |                     |  | Offer to Employees and Directors of Accrue to
    Exchange Options, dated January 31, 2002                                                                                                                                                                                                                                 |  | SC TO-I |  | 1/31/02  |  |          | (a    | )(1) |  |  |  | 
|        | 10.1 |                     |  | Form of Indemnification Agreement between Accrue
    Software, Inc. and each of its officers and directors                                                                                                                                                                                                                 |  | S-1     |  | 5/27/99  |  |          | 10.1  |      |  |  |  | 
|        | 10.2 |                     |  | Common Stock Purchase Warrant issued to Sterling
    Payot Company on May 3, 1996, exercisable for 350,000
    shares of Common Stock and letter amendment dated May 23,
    1999 between Accrue Software, Inc. and Sterling Payot Company                                                                                 |  | S-1     |  | 5/27/99  |  |          | 10.2  |      |  |  |  | 
|        | 10.3 |                     |  | 1996 Stock Plan, as amended August 13, 1998,
    May 23, 1999, and August 31, 2000 and form of
    agreement thereunder                                                                                                                                                                                                    |  | 10-Q    |  | 11/14/00 |  |          | 10.3  |      |  |  |  | 
|        | 10.4 |                     |  | Employment letter agreement effective February
    1996 between Accrue Software, Inc. and Bob Page                                                                                                                                                                                                                         |  | S-1     |  | 5/27/99  |  |          | 10.4  |      |  |  |  | 
|        | 10.5 | *                   |  | Software License Agreement dated July 1,
    1997 between Accrue Software, Inc. and VI/ Visualize, Inc.                                                                                                                                                                                                                    |  | S-1     |  | 5/27/99  |  |          | 10.5  |      |  |  |  | 
|        | 10.6 |                     |  | Loan and Security Agreement dated
    September 19, 1997 between Accrue Software, Inc. and
    Silicon Valley Bank, as amended by the Loan Modification
    Agreement dated April 9, 1999                                                                                                                                  |  | S-1     |  | 5/27/99  |  |          | 10.6  |      |  |  |  | 
|        | 10.7 |                     |  | Settlement Agreement dated March 3, 1998
    between Accrue Software, Inc. and Simon Roy, as amended by
    Amendment No. 1 dated April 29, 1998                                                                                                                                                                           |  | S-1     |  | 5/27/99  |  |          | 10.7  |      |  |  |  | 
|        | 10.8 |                     |  | Settlement Agreement and Mutual Release dated
    May 13, 1998 between Accrue Software, Inc. and William R.
    Stein                                                                                                                                                                                                      |  | S-1     |  | 5/27/99  |  |          | 10.8  |      |  |  |  | 
|        | 10.9 |                     |  | Employment letter agreement dated June 16,
    1998 between Accrue Software, Inc. and Richard D. Kreysar                                                                                                                                                                                                                   |  | S-1     |  | 5/27/99  |  |          | 10.9  |      |  |  |  | 
|        | 10.1 | 0                   |  | Second Amended and Restated Investor Rights
    Agreement dated August 13, 1998                                                                                                                                                                                                                                            |  | S-1     |  | 5/27/99  |  |          | 10.10 |      |  |  |  | 
|        | 10.1 | 1                   |  | Employment letter agreement dated
    November 5, 1998 between Accrue Software, Inc. and Brett
    Kilpatrick                                                                                                                                                                                                              |  | S-1     |  | 5/27/99  |  |          | 10.11 |      |  |  |  | 
|        | 10.1 | 2                   |  | Standard Sublease dated February 25, 1999
    between Accrue Software, Inc. and Premisys Communications, Inc.,
    as sublessor, and Lease Agreement dated June 4, 1998
    between Premisys Communications, Inc. and Aetna Life Insurance
    Company, as master landlord, for 48634 Milmont Drive, Fremont,
    CA 94538 |  | S-1     |  | 5/27/99  |  |          | 10.12 |      |  |  |  | 
|        | 10.1 | 3*                  |  | OEM Agreement dated March 29, 1999 between
    Accrue Software, Inc. and Informix Software, Inc.                                                                                                                                                                                                                           |  | S-1     |  | 5/27/99  |  |          | 10.13 |      |  |  |  | 

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|        |      |                     |  |                                                                                                                                        |  |        |  |          |  |          |       |  |  |  |   | 
|------- | ---- | ------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------- |  | ------ |  | -------- |  | -------- | ----- |  |  |  | - | 
|        |      |                     |  |                                                                                                                                        |  |       
|        |      |                     |  | Incorporated by Reference                                                                                                              |  |       
|Exhibit |      |                     |  |                                                                                                                                        |  | Filed 
|Number  |      | Exhibit Description |  | Form                                                                                                                                   |  | Date   |  | Number   |  | Herewith
|        |      |                     |  |                                                                                                                                        |  |        |  |          |  |         
|        | 10.1 | 4                   |  | 1999 Employee Stock Purchase Plan dated
    May 23, 1999 and form of agreement thereunder                                              |  | S-1    |  | 5/27/99  |  |          | 10.14 |  |  |  |   | 
|        | 10.1 | 5                   |  | 1999 Directors Stock Option Plan dated
    May 23, 1999 and form of agreement thereunder                                              |  | S-1    |  | 5/27/99  |  |          | 10.15 |  |  |  |   | 
|        | 10.1 | 6                   |  | Loan Modification Agreement with Silicon Valley
    Bank dated June 22, 1999                                                           |  | S-1/A  |  | 7/6/99   |  |          | 10.16 |  |  |  |   | 
|        | 10.1 | 7                   |  | Warrant Purchase Agreement with Silicon Valley
    Bank dated May 25, 1999                                                             |  | S-1    |  | 5/27/99  |  |          | 10.17 |  |  |  |   | 
|        | 10.1 | 8                   |  | Employment letter agreement dated March 3,
    1999 between Accrue Software, Inc. and Gregory C. Walker                                |  | S-1    |  | 5/27/99  |  |          | 10.18 |  |  |  |   | 
|        | 10.1 | 9                   |  | Employment letter agreement dated
    September 22, 1999 between Accrue Software, Inc. and Bob
    Wyman                               |  | 10-Q   |  | 8/14/00  |  |          | 10.19 |  |  |  |   | 
|        | 10.2 | 0                   |  | Employment letter agreement dated
    November 28, 1999 between Accrue Software, Inc. and
    Jonathan Becher                          |  | 1O-Q   |  | 8/14/00  |  |          | 10.20 |  |  |  |   | 
|        | 10.2 | 1                   |  | Employment letter agreement dated May 26,
    2000 between Accrue Software, Inc. and Ron Yu                                            |  | 10-Q   |  | 8/14/00  |  |          | 10.20 |  |  |  |   | 
|        | 10.2 | 2*                  |  | Software License Agreement dated as of
    July 1, 2000 between VI/Visualize, Inc. and Accrue
    Software, Inc.                       |  | 10-Q   |  | 11/14/00 |  |          | 10.22 |  |  |  |   | 
|        | 10.2 | 3                   |  | Separation Agreement and Mutual Release dated
    March 24, 2001 between Richard D. Kreysar and Accrue
    Software, Inc.              |  | 10-K   |  | 6/29/01  |  |          | 10.25 |  |  |  |   | 
|        | 10.2 | 4                   |  | Employment letter agreement dated
    February 26, 2001 between Accrue Software, Inc. and Judson
    Groshong                          |  | 10-K/A |  | 7/6/04   |  |          | 10.24 |  |  |  |   | 
|        | 10.2 | 5                   |  | Employment letter agreement dated March 8,
    2001 between Accrue Software, Inc. and Jeffery Walker                                   |  | 10-K   |  | 6/29/01  |  |          | 10.25 |  |  |  |   | 
|        | 10.2 | 6                   |  | Separation Agreement and Mutual Release dated
    June 12, 2001 between Gregory C. Walker and Accrue
    Software, Inc.                |  | 10-K   |  | 6/29/01  |  |          | 10.26 |  |  |  |   | 
|        | 10.2 | 7**                 |  | Software License Agreement between Lycos Europe
    GMBH and Accrue Software, Inc. dated as of June 22, 2001                           |  | 10-Q   |  | 11/13/02 |  |          | 10.27 |  |  |  |   | 
|        | 10.2 | 8                   |  | Employment letter agreement dated
    September 19, 2001 between Accrue Software, Inc. and
    Richard J. DAngelo                     |  | 10-Q   |  | 2/12/02  |  |          | 10.28 |  |  |  |   | 
|        | 10.2 | 9                   |  | Employment letter agreement dated May 15,
    2001 between Accrue Software, Inc. and P.K. Karnik                                       |  | 10-Q   |  | 11/13/02 |  |          | 10.29 |  |  |  |   | 
|        | 10.3 | 0                   |  | Employment letter agreement dated May 23,
    2001 between Accrue Software, Inc. and Denise Senter-Loyola                              |  | 10-Q   |  | 11/13/02 |  |          | 10.29 |  |  |  |   | 
|        | 10.3 | 1                   |  | Employment letter agreement dated October 3,
    2001 between Accrue Software, Inc. and Greg Carson                                    |  | 10-Q   |  | 2/12/02  |  |          | 10.31 |  |  |  |   | 
|        | 10.3 | 2                   |  | Form of License Agreement, dated as of
    May 30, 2002, by and between Accrue Software, Inc. and
    Pilot Software Acquisition Corp. |  | 8-K    |  | 6/13/02  |  |          | 2.1   |  |  |  |   | 
|        | 10.3 | 3                   |  | Form of Support Agreement dated as of
    May 30, 2000 by and between the Accrue Software, Inc. and
    Pilot Software Services Corp.  |  | 8-K    |  | 6/13/02  |  |          | 2.1   |  |  |  |   | 
|        | 10.3 | 4                   |  | Form of Second Amendment to Sublease between
    Premisys Communications, Inc. and Accrue Software Inc. dated
    February 11, 2002    |  |        |  |          |  |          |       |  |  |  | X | 

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|        |      |                     |  |                                                                                                                             |  |       |  |        |  |          |  |  |  |  |   | 
|------- | ---- | ------------------- |  | --------------------------------------------------------------------------------------------------------------------------- |  | ----- |  | ------ |  | -------- |  |  |  |  | - | 
|        |      |                     |  |                                                                                                                             |  |      
|        |      |                     |  | Incorporated by Reference                                                                                                   |  |      
|Exhibit |      |                     |  |                                                                                                                             |  | Filed
|Number  |      | Exhibit Description |  | Form                                                                                                                        |  | Date  |  | Number |  | Herewith
|        |      |                     |  |                                                                                                                             |  |       |  |        |  |         
|        | 10.3 | 5                   |  | Form of Office Lease Agreement between EOP-One
    Canal Park, LLC and Accrue Software Inc., dated 3/14/01                  |  |       |  |        |  |          |  |  |  |  | X | 
|        | 10.3 | 6                   |  | Letter agreement between Accrue Software, Inc.
    and Bruce Armstrong dated April 17, 2002                                 |  |       |  |        |  |          |  |  |  |  | X | 
|        | 10.3 | 7                   |  | Form of Separation Agreement and Mutual Release
    dated May 10, 2001 between Jeffrey Walker and Accrue
    Software, Inc. |  |       |  |        |  |          |  |  |  |  | X | 
|        | 10.3 | 8                   |  | Form of General Release dated May 10, 2001
    between Richard DAngelo and Accrue Software, Inc.                           |  |       |  |        |  |          |  |  |  |  | X | 
|        | 23.1 |                     |  | Consent of Independent Accountants                                                                                          |  |       |  |        |  |          |  |  |  |  | X | 



---



|   |                                                                                                                                                        
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|*  | Confidential treatment has been granted with
    respect to certain portions of this Exhibit which has been filed
    separately with the Commission.  
|  
|** | Confidential treatment has been requested with
    respect to certain portions of this Exhibit which has been filed
    separately with the Commission.



| |    |                             
| | -- | ----------------------------
| | 3. | Financial Statement Schedule

Schedule II  Valuation and
Qualifying Accounts is filed on page 93 of this report

(b) Reports on Form 8-K.

We filed a current report on Form 8-K on
January 30, 2002 with the Securities and Exchange
Commission to announce certain of our financial results for the
fiscal third quarter ended December 29, 2001.

(c) Exhibits

The Registrant hereby files as part of this
Report the exhibits listed in Item 14(a) (2), as set forth
above.

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##### Table of Contents



REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Accrue Software, Inc.

In our opinion, the accompanying consolidated
balance sheets and the related consolidated statements of
operations, of stockholders equity and of cash flows
present fairly, in all material respects, the financial position
of Accrue Software, Inc. at March 31, 2001 and
March 30, 2002, and the results of their operations and
their cash flows for each of the three years in the period ended
March 30, 2002, in conformity with accounting principles
generally accepted in the United States of America. These
financial statements are the responsibility of the
Companys management; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of
America, which 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, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.

The accompanying financial statements have been
prepared assuming the Company will continue as a going concern.
As discussed in Note 2 to the financial statements, the
Company has suffered recurring losses from operations and has a
net capital deficiency that raise substantial doubt about its
ability to continue as a going concern. Managements plans
in regard to these matters are also described in Note 2.
The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.

/s/ PricewaterhouseCoopers LLP

San Jose, California

May 9, 2002, except as to Note 11,


which is as of June 26, 2002


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ACCRUE SOFTWARE, INC.

CONSOLIDATED BALANCE SHEETS

|                                         |                                                                                                                                                    |                                            |        |           |        |  |       |          |        | 
|---------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | --------- | ------ |  | ----- | -------- | ------ | 
|                                         |                                                                                                                                                    | March 31,                                  |        | March 30,
|                                         |                                                                                                                                                    | 2001                                       |        | 2002     
|                                         |                                                                                                                                                    |                                            |        |          
|                                         |                                                                                                                                                    |                                           
|                                         |                                                                                                                                                    | (in thousands, except                     
|                                         |                                                                                                                                                    | per share data)                           
|ASSETS                                  
|Current assets:                          |                                                                                                                                                    |                                            |        |           |        |  |       |         
|                                         | Cash and cash equivalents                                                                                                                          |                                            | $      | 11,951    |        |  | $     | 2,646    |       
|                                         | Accounts receivable, net                                                                                                                           |                                            |        | 1,868     |        |  |       | 1,952    |       
|                                         | Prepaid expenses and other current assets                                                                                                          |                                            |        | 2,782     |        |  |       | 476      |       
|                                         |                                                                                                                                                    |                                            |        |           |        |  |       |         
|                                         |                                                                                                                                                    | Total current assets                       |        |           | 16,601 |  |       |          | 5,074  | 
|Property and equipment, net              |                                                                                                                                                    |                                            | 2,923  |           |        |  | 1,894 |         
|Intangible assets                        |                                                                                                                                                    |                                            | 10,383 |           |        |  | 4,604 |         
|Other assets                             |                                                                                                                                                    |                                            | 362    |           |        |  | 200   |         
|                                         |                                                                                                                                                    |                                            |        |           |        |  |       |         
|                                         |                                                                                                                                                    | Total assets                               |        | $         | 30,269 |  |       | $        | 11,772 | 
|                                         |                                                                                                                                                    |                                            |        |           |        |  |       |         
|LIABILITIES AND STOCKHOLDERS
    EQUITY
|Liabilities:                             |                                                                                                                                                    |                                            |        |           |        |  |       |         
|Current liabilities:                     |                                                                                                                                                    |                                            |        |           |        |  |       |         
|                                         | Accounts payable                                                                                                                                   |                                            | $      | 1,026     |        |  | $     | 633      |       
|                                         | Accrued liabilities                                                                                                                                |                                            |        | 4,406     |        |  |       | 2,363    |       
|                                         | Accrued liabilities, merger                                                                                                                        |                                            |        | 80        |        |  |       |         |       
|                                         | Deferred revenue                                                                                                                                   |                                            |        | 4,897     |        |  |       | 3,146    |       
|                                         | Short-term borrowings                                                                                                                              |                                            |        | 2,000     |        |  |       |         |       
|                                         |                                                                                                                                                    |                                            |        |           |        |  |       |         
|                                         |                                                                                                                                                    | Total current liabilities                  |        |           | 12,409 |  |       |          | 6,142  | 
|                                         |                                                                                                                                                    |                                            |        |           |        |  |       |         
|Commitments and contingencies (Note 5)   |                                                                                                                                                    |                                            |        |           |        |  |       |         
|Stockholders equity:                    |                                                                                                                                                    |                                            |        |           |        |  |       |         
|                                         | Preferred stock, $0.001 par value:
    Authorized: 5,000 shares; Issued and Outstanding: none                                                      |                                            |        |          |        |  |       |         |       
|                                         | Common stock, $0.001 par value: Authorized:
    75,000 shares; Issued and Outstanding: 30,295 and
    30,109 shares in 2001 and 2002, respectively |                                            |        | 31        |        |  |       | 31       |       
|                                         | Additional paid-in capital                                                                                                                         |                                            |        | 264,996   |        |  |       | 263,836  |       
|                                         | Deferred stock-based compensation                                                                                                                  |                                            |        | (1,023    | )      |  |       | (93      | )     
|                                         | Accumulated other comprehensive income (loss)                                                                                                      |                                            |        | (35       | )      |  |       | 72       |       
|                                         | Accumulated deficit                                                                                                                                |                                            |        | (246,109  | )      |  |       | (258,216 | )     
|                                         |                                                                                                                                                    |                                            |        |           |        |  |       |         
|                                         |                                                                                                                                                    | Total stockholders equity                 |        |           | 17,860 |  |       |          | 5,630  | 
|                                         |                                                                                                                                                    |                                            |        |           |        |  |       |         
|                                         |                                                                                                                                                    | Total liabilities and stockholders equity |        | $         | 30,269 |  |       | $        | 11,772 | 
|                                         |                                                                                                                                                    |                                            |        |           |        |  |       |         

The accompanying notes are an integral part of
these consolidated financial statements.

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ACCRUE SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                   |                                              |                                       |         |           |        |           |          |         |         |   |         |        |        | 
|------------------------------------------------------------------ | -------------------------------------------- | ------------------------------------- | ------- | --------- | ------ | --------- | -------- | ------- | ------- | - | ------- | ------ | ------ | 
|                                                                   |                                              |                                      
|                                                                   |                                              | Year Ended                           
|                                                                   |                                              |                                      
|                                                                   |                                              | March 31,                             |         | March 31, |        | March 30,
|                                                                   |                                              | 2000                                  |         | 2001      |        | 2002     
|                                                                   |                                              |                                       |         |           |        |          
|                                                                   |                                              |                                      
|                                                                   |                                              | (in thousands, except per share data)
|Revenue:                                                           |                                              |                                       |         |           |        |           |          |         |         |   |         |       
|                                                                   | Software license                             |                                       | $       | 14,681    |        |           | $        | 14,592  |         |   | $       | 4,297  |       
|                                                                   | Maintenance and service                      |                                       |         | 4,183     |        |           |          | 11,042  |         |   |         | 10,011 |       
|                                                                   |                                              |                                       |         |           |        |           |          |         |         |   |         |       
|                                                                   |                                              | Total revenue                         |         |           | 18,864 |           |          |         | 25,634  |   |         |        | 14,308 | 
|                                                                   |                                              |                                       |         |           |        |           |          |         |         |   |         |       
|Cost of revenue:                                                   |                                              |                                       |         |           |        |           |          |         |         |   |         |       
|                                                                   | Software license                             |                                       |         | 602       |        |           |          | 871     |         |   |         | 300    |       
|                                                                   | Maintenance and service                      |                                       |         | 2,166     |        |           |          | 8,043   |         |   |         | 6,605  |       
|                                                                   |                                              |                                       |         |           |        |           |          |         |         |   |         |       
|                                                                   |                                              | Total cost of revenue                 |         |           | 2,768  |           |          |         | 8,914   |   |         |        | 6,905  | 
|                                                                   |                                              |                                       |         |           |        |           |          |         |         |   |         |       
|Gross profit                                                       |                                              |                                       | 16,096  |           |        |           | 16,720   |         |         |   | 7,403   |       
|                                                                   |                                              |                                       |         |           |        |           |          |         |         |   |         |       
|Operating expenses:                                                |                                              |                                       |         |           |        |           |          |         |         |   |         |       
|                                                                   | Research and development                     |                                       |         | 4,410     |        |           |          | 9,454   |         |   |         | 6,915  |       
|                                                                   | Sales and marketing                          |                                       |         | 12,106    |        |           |          | 14,193  |         |   |         | 6,267  |       
|                                                                   | General and administrative                   |                                       |         | 2,437     |        |           |          | 9,569   |         |   |         | 5,371  |       
|                                                                   | Merger costs                                 |                                       |         | 3,560     |        |           |          |        |         |   |         |       |       
|                                                                   | In-process research and development          |                                       |         | 650       |        |           |          | 4,503   |         |   |         |       |       
|                                                                   | Amortization of intangibles                  |                                       |         | 10,859    |        |           |          | 49,559  |         |   |         | 4,580  |       
|                                                                   | Impairment of goodwill and other intangibles |                                       |         |          |        |           |          | 139,665 |         |   |         | 1,200  |       
|                                                                   | Stock-based compensation expense             |                                       |         | 4,344     |        |           |          | 2,190   |         |   |         | (276   | )     
|                                                                   |                                              |                                       |         |           |        |           |          |         |         |   |         |       
|                                                                   |                                              | Total operating expenses              |         |           | 38,366 |           |          |         | 229,133 |   |         |        | 24,057 | 
|                                                                   |                                              |                                       |         |           |        |           |          |         |         |   |         |       
|Loss from operations                                               |                                              |                                       | (22,270 | )         |        |           | (212,413 | )       |         |   | (16,654 | )     
|Interest income                                                    |                                              |                                       | 1,247   |           |        |           | 1,350    |         |         |   | 272     |       
|Interest expense                                                   |                                              |                                       | (96     | )         |        |           | (156     | )       |         |   | (31     | )     
|Gain on sale of a technology asset                                 |                                              |                                       |        |           |        |           |         |         |         |   | 4,306   |       
|                                                                   |                                              |                                       |         |           |        |           |          |         |         |   |         |       
|Net loss                                                           |                                              | $                                     | (21,119 | )         |        | $         | (211,219 | )       |         | $ | (12,107 | )     
|                                                                   |                                              |                                       |         |           |        |           |          |         |         |   |         |       
|Net loss per share, basic and diluted                              |                                              | $                                     | (1.33   | )         |        | $         | (7.55    | )       |         | $ | (0.41   | )     
|                                                                   |                                              |                                       |         |           |        |           |          |         |         |   |         |       
|Shares used in computing net loss per share,
    basic and diluted |                                              |                                       | 15,822  |           |        |           | 27,958   |         |         |   | 29,820  |       
|                                                                   |                                              |                                       |         |           |        |           |          |         |         |   |         |       

The accompanying notes are an integral part of
these consolidated financial statements.

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ACCRUE SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

|                                                                                                             |                          |                 |        |              |  |            |         |            |  |             |        |               |  |              |    |               |  |         |         |       |  |   |      |   |  |   |        |   |  |   |     |   |  |   |          |   |  |   |         |          |  
|------------------------------------------------------------------------------------------------------------ | ------------------------ | --------------- | ------ | ------------ |  | ---------- | ------- | ---------- |  | ----------- | ------ | ------------- |  | ------------ | -- | ------------- |  | ------- | ------- | ----- |  | - | ---- | - |  | - | ------ | - |  | - | --- | - |  | - | -------- | - |  | - | ------- | -------- | -
|                                                                                                             |                          |                 |        |              |  |            |         |            |  |             |        |               |  |              |    |               |  |        
|                                                                                                             |                          | Convertible     |        |              |  |            |         | Notes      |  |             |        | Accumulated   |  |              |    |              
|                                                                                                             |                          | Preferred Stock |        | Common Stock |  | Additional |         | Receivable |  | Deferred    |        | Other         |  |              |    |              
|                                                                                                             |                          |                 |        |              |  | Paid-In    |         | from       |  | Stock-based |        | Comprehensive |  | Accumulated  |    |              
|                                                                                                             |                          | Shares          |        | Amount       |  | Shares     |         | Amount     |  | Capital     |        | Stockholders  |  | Compensation |    | Income/(Loss) |  | Deficit |         | Total
|                                                                                                             |                          |                 |        |              |  |            |         |            |  |             |        |               |  |              |    |               |  |         |         |      
|                                                                                                             |                          |                
|                                                                                                             |                          | (in thousands) 
|Balances, March 31, 1999                                                                                     |                          |                 | 10,353 |              |  | $          | 15,517  |            |  |             | 6,883  |               |  | $            | 7  |               |  | $       | 6,803   |       |  | $ | (213 | ) |  | $ | (4,929 | ) |  | $ |    |   |  | $ | (13,771  | ) |  | $ | 3,414   |         
|Exercise of stock options                                                                                    |                          |                 |       |              |  |            |        |            |  |             | 2,130  |               |  |              | 2  |               |  |         | 872     |       |  |   |     |   |  |   |       |   |  |   |    |   |  |   |         |   |  |   | 874     |         
|Issuance of common stock in connection with the
    Companys initial public offering, net                   |                          |                 |       |              |  |            |        |            |  |             | 4,485  |               |  |              | 5  |               |  |         | 40,810  |       |  |   |     |   |  |   |       |   |  |   |    |   |  |   |         |   |  |   | 40,815  |         
|Issuance of common stock for cash                                                                            |                          |                 |       |              |  |            |        |            |  |             | 61     |               |  |              |   |               |  |         | 519     |       |  |   |     |   |  |   |       |   |  |   |    |   |  |   |         |   |  |   | 519     |         
|Repurchase of common stock                                                                                   |                          |                 |       |              |  |            |        |            |  |             | (11    | )             |  |              |   |               |  |         | (5      | )     |  |   |     |   |  |   |       |   |  |   |    |   |  |   |         |   |  |   | (5      | )       
|Deferred stock-based compensation related to
    grants of stock options                                     |                          |                 |       |              |  |            |        |            |  |             |       |               |  |              |   |               |  |         | 3,652   |       |  |   |     |   |  |   | (3,652 | ) |  |   |    |   |  |   |         |   |  |   |        |         
|Conversion of preferred stock into common stock
    in connection with the Companys initial public offering |                          |                 | (9,033 | )            |  |            | (12,876 | )          |  |             | 10,280 |               |  |              | 10 |               |  |         | 12,866  |       |  |   |     |   |  |   |       |   |  |   |    |   |  |   |         |   |  |   |        |         
|Conversion of preferred stock into common stock
    in connection with the Marketwave acquisition            |                          |                 | (1,320 | )            |  |            | (2,641  | )          |  |             | 1,320  |               |  |              | 1  |               |  |         | 2,640   |       |  |   |     |   |  |   |       |   |  |   |    |   |  |   |         |   |  |   |        |         
|Issuance of common stock in connection with the
    NeoVista acquisition                                     |                          |                 |       |              |  |            |        |            |  |             | 1,779  |               |  |              | 2  |               |  |         | 122,898 |       |  |   |     |   |  |   |       |   |  |   |    |   |  |   |         |   |  |   | 122,900 |         
|Exercise of warrants for shares of common stock                                                              |                          |                 |       |              |  |            |        |            |  |             | 350    |               |  |              |   |               |  |         | 245     |       |  |   |     |   |  |   |       |   |  |   |    |   |  |   |         |   |  |   | 245     |         
|Amortization of deferred stock-based compensation                                                            |                          |                 |       |              |  |            |        |            |  |             |       |               |  |              |   |               |  |         |        |       |  |   |     |   |  |   | 4,344  |   |  |   |    |   |  |   |         |   |  |   | 4,344   |         
|Net loss                                                                                                     |                          |                 |       |              |  |            |        |            |  |             |       |               |  |              |   |               |  |         |        |       |  |   |     |   |  |   |       |   |  |   |    |   |  |   | (21,119  | ) |  |   | (21,119 | )       
|                                                                                                             |                          |                 |        |              |  |            |         |            |  |             |        |               |  |              |    |               |  |         |         |       |  |   |      |   |  |   |        |   |  |   |     |   |  |   |          |   |  |   |         |         
|Balances, March 31, 2000                                                                                     |                          |                 |       |              |  |            |        |            |  |             | 27,277 |               |  |              | 27 |               |  |         | 191,300 |       |  |   | (213 | ) |  |   | (4,237 | ) |  |   |    |   |  |   | (34,890  | ) |  |   | 151,987 |         
|Exercise of stock options and warrants                                                                       |                          |                 |       |              |  |            |        |            |  |             | 566    |               |  |              |   |               |  |         | 930     |       |  |   |     |   |  |   |       |   |  |   |    |   |  |   |         |   |  |   | 930     |         
|Issuance of common stock for cash                                                                            |                          |                 |       |              |  |            |        |            |  |             | 176    |               |  |              |   |               |  |         | 923     |       |  |   |     |   |  |   |       |   |  |   |    |   |  |   |         |   |  |   | 923     |         
|Repurchase of common stock                                                                                   |                          |                 |       |              |  |            |        |            |  |             | (365   | )             |  |              |   |               |  |         | (307    | )     |  |   |     |   |  |   |       |   |  |   |    |   |  |   |         |   |  |   | (307    | )       
|Forgiveness of notes receivable from stockholders                                                            |                          |                 |       |              |  |            |        |            |  |             |       |               |  |              |   |               |  |         |        |       |  |   | 213  |   |  |   |       |   |  |   |    |   |  |   |         |   |  |   | 213     |         
|Issuance of common stock in connection with the
    Tantau acquisition                                       |                          |                 |       |              |  |            |        |            |  |             | 1,667  |               |  |              | 3  |               |  |         | 53,966  |       |  |   |     |   |  |   |       |   |  |   |    |   |  |   |         |   |  |   | 53,969  |         
|Issuance of common stock in connection with the
    Pilot acquisition                                        |                          |                 |       |              |  |            |        |            |  |             | 974    |               |  |              | 1  |               |  |         | 19,422  |       |  |   |     |   |  |   |       |   |  |   |    |   |  |   |         |   |  |   | 19,423  |         
|Amortization of deferred stock-based compensation                                                            |                          |                 |       |              |  |            |        |            |  |             |       |               |  |              |   |               |  |         |        |       |  |   |     |   |  |   | 2,190  |   |  |   |    |   |  |   |         |   |  |   | 2,190   |         
|Deferred stock-based compensation relating to
    options cancelled, net                                     |                          |                 |       |              |  |            |        |            |  |             |       |               |  |              |   |               |  |         | (1,238  | )     |  |   |     |   |  |   | 1,024  |   |  |   |    |   |  |   |         |   |  |   | (214    | )       
|Comprehensive loss:                                                                                          |                          |                 |        |              |  |            |         |            |  |             |        |               |  |              |    |               |  |         |         |       |  |   |      |   |  |   |        |   |  |   |     |   |  |   |          |   |  |   |         |         
|Foreign currency translation loss                                                                            |                          |                 |       |              |  |            |        |            |  |             |       |               |  |              |   |               |  |         |        |       |  |   |     |   |  |   |       |   |  |   | (35 | ) |  |   |         |   |  |   |         |         
|Net loss                                                                                                     |                          |                 |       |              |  |            |        |            |  |             |       |               |  |              |   |               |  |         |        |       |  |   |     |   |  |   |       |   |  |   |    |   |  |   | (211,219 | ) |  |   |         |         
|                                                                                                             | Total comprehensive loss |                 |        |              |  |            |         |            |  |             |        |               |  |              |    |               |  |         |         |       |  |   |      |   |  |   |        |   |  |   |     |   |  |   |          |   |  |   |         | (211,254 | )
|                                                                                                             |                          |                 |        |              |  |            |         |            |  |             |        |               |  |              |    |               |  |         |         |       |  |   |      |   |  |   |        |   |  |   |     |   |  |   |          |   |  |   |         |         
|Balances, March 31, 2001                                                                                     |                          |                 |       |              |  |            |        |            |  |             | 30,295 |               |  |              | 31 |               |  |         | 264,996 |       |  |   |     |   |  |   | (1,023 | ) |  |   | (35 | ) |  |   | (246,109 | ) |  |   | 17,860  |         
|Exercise of stock options and warrants                                                                       |                          |                 |       |              |  |            |        |            |  |             | 97     |               |  |              |   |               |  |         | 52      |       |  |   |     |   |  |   |       |   |  |   |    |   |  |   |         |   |  |   | 52      |         
|Issuance of common stock for cash                                                                            |                          |                 |       |              |  |            |        |            |  |             | 120    |               |  |              |   |               |  |         | 41      |       |  |   |     |   |  |   |       |   |  |   |    |   |  |   |         |   |  |   | 41      |         
|Repurchase of common stock                                                                                   |                          |                 |       |              |  |            |        |            |  |             | (403   | )             |  |              |   |               |  |         | (47     | )     |  |   |     |   |  |   |       |   |  |   |    |   |  |   |         |   |  |   | (47     | )       
|Amortization of deferred stock-based compensation                                                            |                          |                 |       |              |  |            |        |            |  |             |       |               |  |              |   |               |  |         |        |       |  |   |     |   |  |   | (276   | ) |  |   |    |   |  |   |         |   |  |   | (276    | )       
|Deferred stock-based compensation relating to
    options cancelled, net                                     |                          |                 |       |              |  |            |        |            |  |             |       |               |  |              |   |               |  |         | (1,206  | )     |  |   |     |   |  |   | 1,206  |   |  |   |    |   |  |   |         |   |  |   |        |         
|Comprehensive loss:                                                                                          |                          |                 |        |              |  |            |         |            |  |             |        |               |  |              |    |               |  |         |         |       |  |   |      |   |  |   |        |   |  |   |     |   |  |   |          |   |  |   |         |         
|Foreign currency translation gain                                                                            |                          |                 |       |              |  |            |        |            |  |             |       |               |  |              |   |               |  |         |        |       |  |   |     |   |  |   |       |   |  |   | 107 |   |  |   |         |   |  |   |         |         
|Net loss                                                                                                     |                          |                 |       |              |  |            |        |            |  |             |       |               |  |              |   |               |  |         |        |       |  |   |     |   |  |   |       |   |  |   |    |   |  |   | (12,107  | ) |  |   |         |         
|                                                                                                             | Total comprehensive loss |                 |        |              |  |            |         |            |  |             |        |               |  |              |    |               |  |         |         |       |  |   |      |   |  |   |        |   |  |   |     |   |  |   |          |   |  |   |         | (12,000  | )
|                                                                                                             |                          |                 |        |              |  |            |         |            |  |             |        |               |  |              |    |               |  |         |         |       |  |   |      |   |  |   |        |   |  |   |     |   |  |   |          |   |  |   |         |         
|Balances, March 30, 2002                                                                                     |                          |                 |       |              |  | $          |        |            |  |             | 30,109 |               |  | $            | 31 |               |  | $       | 263,836 |       |  | $ |     |   |  | $ | (93    | ) |  | $ | 72  |   |  | $ | (258,216 | ) |  | $ | 5,630   |         
|                                                                                                             |                          |                 |        |              |  |            |         |            |  |             |        |               |  |              |    |               |  |         |         |       |  |   |      |   |  |   |        |   |  |   |     |   |  |   |          |   |  |   |         |         

The accompanying notes are an integral part of
these consolidated financial statements.

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##### Table of Contents



ACCRUE SOFTWARE, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                  |                                                                                        |                                                                       |                                           |                                                         |        |           |        |          |         |        |         |         |        |        |         |  
|------------------------------------------------- | -------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ----------------------------------------- | ------------------------------------------------------- | ------ | --------- | ------ | -------- | ------- | ------ | ------- | ------- | ------ | ------ | ------- | -
|                                                  |                                                                                        | March 31,                                                             |                                           | March 31,                                               |        | March 30,
|                                                  |                                                                                        | 2000                                                                  |                                           | 2001                                                    |        | 2002     
|                                                  |                                                                                        |                                                                       |                                           |                                                         |        |          
|                                                  |                                                                                        |                                                                      
|                                                  |                                                                                        | (in thousands)                                                       
|Cash flows from operating activities:             |                                                                                        |                                                                       |                                           |                                                         |        |           |        |          |         |        |         |        
|                                                  | Net loss                                                                               |                                                                       | $                                         | (21,119                                                 | )      |           | $      | (211,219 | )       |        | $       | (12,107 | )     
|                                                  | Adjustments to reconcile net loss to net cash
    used in operating activities:        |                                                                       |                                           |                                                         |        |           |        |          |         |        |         |         |       
|                                                  |                                                                                        | Write-off of purchased in-process research and
    development        |                                           |                                                         | 650    |           |        |          | 4,503   |        |         |         |       |       
|                                                  |                                                                                        | Impairment of goodwill and other intangibles                          |                                           |                                                         |       |           |        |          | 139,665 |        |         |         | 1,200  |       
|                                                  |                                                                                        | Gain on sale of a technology asset                                    |                                           |                                                         |       |           |        |          |        |        |         |         | (4,306 | )     
|                                                  |                                                                                        | Fixed assets written off                                              |                                           |                                                         |       |           |        |          | 309     |        |         |         | 68     |       
|                                                  |                                                                                        | Depreciation and amortization                                         |                                           |                                                         | 11,460 |           |        |          | 50,475  |        |         |         | 5,621  |       
|                                                  |                                                                                        | Provision for sales returns and doubtful accounts                     |                                           |                                                         | 419    |           |        |          | 3,628   |        |         |         | 106    |       
|                                                  |                                                                                        | Amortization of discount on line of credit                            |                                           |                                                         | 7      |           |        |          |        |        |         |         |       |       
|                                                  |                                                                                        | Stock-based compensation expense                                      |                                           |                                                         | 4,344  |           |        |          | 2,190   |        |         |         | (276   | )     
|                                                  |                                                                                        | Changes in operating assets and liabilities, net
    of acquisitions: |                                           |                                                         |        |           |        |          |         |        |         |         |        |       
|                                                  |                                                                                        |                                                                       | Accounts receivable                       |                                                         |        | (4,312    | )      |          |         | 1,953  |         |         |        | (180   | )      
|                                                  |                                                                                        |                                                                       | Prepaid expenses and other current assets |                                                         |        | (1,477    | )      |          |         | 856    |         |         |        | 306    |        
|                                                  |                                                                                        |                                                                       | Other assets                              |                                                         |        | 76        |        |          |         | 87     |         |         |        | 65     |        
|                                                  |                                                                                        |                                                                       | Accounts payable                          |                                                         |        | (69       | )      |          |         | (830   | )       |         |        | (393   | )      
|                                                  |                                                                                        |                                                                       | Accrued liabilities                       |                                                         |        | 1,654     |        |          |         | 784    |         |         |        | (2,043 | )      
|                                                  |                                                                                        |                                                                       | Accrued liabilities, merger               |                                                         |        | (2,578    | )      |          |         | (2,877 | )       |         |        | (80    | )      
|                                                  |                                                                                        |                                                                       | Deferred revenue                          |                                                         |        | 1,731     |        |          |         | (2,232 | )       |         |        | (1,755 | )      
|                                                  |                                                                                        |                                                                       |                                           |                                                         |        |           |        |          |         |        |         |        
|                                                  |                                                                                        |                                                                       |                                           | Net cash used in operating activities                   |        |           | (9,214 | )        |         |        | (12,708 | )       |        |        | (13,774 | )
|                                                  |                                                                                        |                                                                       |                                           |                                                         |        |           |        |          |         |        |         |        
|Cash flows from investing activities:             |                                                                                        |                                                                       |                                           |                                                         |        |           |        |          |         |        |         |        
|                                                  | Acquisition of property and equipment                                                  |                                                                       |                                           | (1,651                                                  | )      |           |        | (1,739   | )       |        |         | (80     | )     
|                                                  | Cash acquired in NeoVista acquisition                                                  |                                                                       |                                           | 436                                                     |        |           |        |         |         |        |         |        |       
|                                                  | Proceeds from sale of a technology asset                                               |                                                                       |                                           |                                                        |        |           |        |         |         |        |         | 4,306   |       
|                                                  | Acquisitions of Tantau and Pilot, net of cash
    acquired                             |                                                                       |                                           |                                                        |        |           |        | (4,964   | )       |        |         |        |       
|                                                  |                                                                                        |                                                                       |                                           |                                                         |        |           |        |          |         |        |         |        
|                                                  |                                                                                        |                                                                       |                                           | Net cash provided by (used in) investing
    activities |        |           | (1,215 | )        |         |        | (6,703  | )       |        |        | 4,226   |  
|                                                  |                                                                                        |                                                                       |                                           |                                                         |        |           |        |          |         |        |         |        
|Cash flows from financing activities:             |                                                                                        |                                                                       |                                           |                                                         |        |           |        |          |         |        |         |        
|                                                  | Proceeds from short-term borrowings                                                    |                                                                       |                                           |                                                        |        |           |        | 2,000    |         |        |         |        |       
|                                                  | Repayment of short-term borrowings                                                     |                                                                       |                                           |                                                        |        |           |        | (1,450   | )       |        |         | (2,000  | )     
|                                                  | Increase in restricted cash related to commitments                                     |                                                                       |                                           |                                                        |        |           |        | (2,297   | )       |        |         |        |       
|                                                  | Decrease in restricted cash related to commitments                                     |                                                                       |                                           |                                                        |        |           |        |         |         |        |         | 2,097   |       
|                                                  | Proceeds from equipment loan                                                           |                                                                       |                                           | 584                                                     |        |           |        |         |         |        |         |        |       
|                                                  | Repayment of equipment loan                                                            |                                                                       |                                           | (3,711                                                  | )      |           |        | (186     | )       |        |         |        |       
|                                                  | Proceeds from stock options and warrants exercised                                     |                                                                       |                                           | 1,119                                                   |        |           |        | 930      |         |        |         | 52      |       
|                                                  | Proceeds from issuance of common stock                                                 |                                                                       |                                           | 519                                                     |        |           |        | 923      |         |        |         | 41      |       
|                                                  | Repurchase of common stock                                                             |                                                                       |                                           | (5                                                      | )      |           |        | (307     | )       |        |         | (47     | )     
|                                                  | Proceeds from initial public offering, net of
    issuance costs                       |                                                                       |                                           | 40,815                                                  |        |           |        |         |         |        |         |        |       
|                                                  |                                                                                        |                                                                       |                                           |                                                         |        |           |        |          |         |        |         |        
|                                                  | Net cash provided by (used in) financing
    activities                                |                                                                       |                                           | 39,321                                                  |        |           |        | (387     | )       |        |         | 143     |       
|                                                  | Effect of exchange rate changes on cash                                                |                                                                       |                                           |                                                        |        |           |        | (5       | )       |        |         | 100     |       
|                                                  |                                                                                        |                                                                       |                                           |                                                         |        |           |        |          |         |        |         |        
|                                                  | Net increase (decrease) in cash and cash
    equivalents                               |                                                                       |                                           | 28,892                                                  |        |           |        | (19,803  | )       |        |         | (9,305  | )     
|Cash and cash equivalents, beginning of year      |                                                                                        |                                                                       | 2,862                                     |                                                         |        |           | 31,754 |          |         |        | 11,951  |        
|                                                  |                                                                                        |                                                                       |                                           |                                                         |        |           |        |          |         |        |         |        
|Cash and cash equivalents, at end of year         |                                                                                        | $                                                                     | 31,754                                    |                                                         |        | $         | 11,951 |          |         | $      | 2,646   |        
|                                                  |                                                                                        |                                                                       |                                           |                                                         |        |           |        |          |         |        |         |        
|Supplemental disclosure of cash flow information: |                                                                                        |                                                                       |                                           |                                                         |        |           |        |          |         |        |         |        
|                                                  | Interest paid                                                                          |                                                                       | $                                         | 49                                                      |        |           | $      | 110      |         |        | $       | 31      |       
|                                                  | Deferred stock-based compensation related to
    grants of stock options               |                                                                       | $                                         | 3,652                                                   |        |           | $      |         |         |        | $       |        |       
|                                                  | Common stock issued in connection with
    acquisitions of NeoVista, Tantau, and Pilot |                                                                       | $                                         | 122,900                                                 |        |           | $      | 73,392   |         |        | $       |        |       

The accompanying notes are an integral part of
these consolidated financial statements.

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##### Table of Contents



ACCRUE SOFTWARE, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



|         |                                  
|-------- | ---------------------------------
|Note 1  | Formation and Business of Accrue:

Accrue Software, Inc. (Accrue or the
Company) was formed in February 1996 and is a
provider of enterprise e-business analysis solutions.
Accrues principal products, Accrue G2 and Accrue Insight,
are e-business analysis software that enable companies gain
comprehensive insight into online customer behavior and make
timely decisions that deliver corporate-wide value from the
Internet channel. Accrues products enable business
decision makers to increase the effectiveness of Internet
marketing and merchandising initiatives, better manage customer
interactions across multiple channels, and reduce costs by
increasing customer self-service via the Web. Accrue also
provides professional services to assist customers in Accrue
product deployment.

Note 2  Summary of Significant
Accounting Policies:



| |                      
| | ---------------------
| | Basis of Presentation

Accrue has completed several rounds of equity
financing, most recently its initial public offering that
generated $40.8 million of net proceeds in July 1999.
However, Accrue has incurred substantial losses and negative
cash flows from operations in each fiscal year since inception.
For the year ended March 30, 2002, Accrue incurred net
losses of $12.1 million and negative cash flows from
operations of $13.8 million. As of March 30, 2002,
Accrue had an accumulated deficit of $258.2 million.
Management expects operating losses and negative cash flows to
continue for the foreseeable future due to a decline in
projected revenues in comparison to fiscal 2001. If working
capital decreased significantly certain costs, such as employee
costs could be reduced further. Accrue is evaluating various
initiatives to improve its cash position, including raising
additional funds to finance its business, implementing further
restrictions on spending, and other cash conservation
initiatives. Additional financing, if available at all, may not
be available on terms that are acceptable to Accrue because of
the uncertainty prevailing in the current market climate. Accrue
may not be successful in implementing or negotiating such other
arrangements to improve its cash position. If Accrue raises
additional funds through the issuance of equity or convertible
debt securities, the percentage ownership of its stockholders
would be reduced and these securities might have rights,
preferences and privileges senior to those of its current
stockholders. Any such financing will be dilutive to existing
stockholders. Failure to generate sufficient revenues, reduce
certain discretionary spending or raise additional capital could
have a material adverse effect on Accrues ability to
continue as a going concern and to achieve its intended business
objectives.

The consolidated financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.



| |                          
| | -------------------------
| | Fiscal accounting periods

Beginning in October 2000, Accrue has adopted
fiscal accounting and reporting periods with a year including
52 weeks ending nearest to March 31.



| |                            
| | ---------------------------
| | Principles of consolidation

These consolidated financial statements include
the accounts of Accrue and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been
eliminated.



| |                 
| | ----------------
| | Use of estimates

The preparation of consolidated financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date
of the financial statements and

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ACCRUE SOFTWARE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.



| |                                     
| | ------------------------------------
| | Certain risks and
    concentrations

Financial instruments that potentially subject
the Company to concentrations of credit risks principally
comprise cash and cash equivalents and accounts receivable. The
Companys cash equivalents are highly liquid investments
with original or remaining maturities of three months or less at
the date of purchase. The majority of Accrues cash and
cash equivalents at March 30, 2002 are on deposit with a
high credit quality financial institution in the United States
of America. At times, such deposits may be in excess of insured
limits. Management believes that Accrues investments in
cash equivalents are financially sound and have minimal credit
risk. The amounts reported for cash equivalents and accounts
receivables are considered to approximate fair values due to
their short maturities.

At March 30, 2002, the Company has
restricted cash of $200,000 related to a letter of credit
facility with a bank, which had term in excess of one year. The
restricted cash balance has been included in Other
assets in the accompanying consolidated balance sheet.

Accrue performs ongoing credit evaluations of its
customers and collateral is not required. Accrue maintains
allowances for potential returns and credit losses. At
March 31, 2001, no single customer accounted for more than
10% of total accounts receivable. At March 30, 2002, two
customers accounted for 16% and 17%, respectively, of total
accounts receivable. Management believes that these customers
are of good credit standing.

The market in which Accrue competes is
characterized by rapid technological change, frequent new
product introductions, changes in customer requirements and
emerging industry standards. Significant technological change
could adversely affect Accrues operating results and
subject Accrue to return of products. While Accrue has ongoing
programs to minimize the adverse effect of such changes and
considers technological change in estimating its allowance, such
estimates could change in the future.



| |                             
| | ----------------------------
| | Foreign Currency Translation

The functional currency of Accrues
wholly-owned foreign subsidiaries are the local currencies.
Assets and liabilities of these subsidiaries are translated into
U.S. dollars at exchange rates at the balance sheet date.
Income and expense items are translated at average exchange
rates for the period. Accumulated translation adjustments are
recorded as a component of accumulated other comprehensive loss
in stockholders equity. Foreign exchange transaction gains
and losses were not material in all periods presented.



| |                       
| | ----------------------
| | Property and equipment

Property and equipment are stated at cost less
accumulated depreciation. Depreciation expense is provided using
the straight-line method over the estimated useful lives of the
respective assets as follows:

|                       |  |                                                           
|---------------------- |  | ----------------------------------------------------------
|Computer equipment     |  | 5 years                                                   
|Software               |  | 3 years                                                   
|Furniture and fixtures |  | 5-7 years                                                 
|Leasehold improvements |  | Shorter of the lease term or the estimated useful
    life

Maintenance and repairs are charged to expense as
incurred. When assets are sold or retired, the cost and related
accumulated depreciation are removed from the accounts and any
resulting gain or loss is included in operations. Depreciation
expense for the years ended March 31, 2000 and 2001 and
March 30, 2002 was $373,000, $984,000 and $1,041,000,
respectively.

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ACCRUE SOFTWARE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                  
| | -----------------
| | Intangible assets

Intangible assets are stated at cost less
accumulated amortization and consist of goodwill, assembled
workforce and developed technology and are amortized on a
straight-line basis over three years. See
Note 3  Business Combinations.

Amortization expense for the years ended
March 31, 2000 and 2001 and March 30, 2002 was
$10,859,000, $49,559,000 and $4,580,000, respectively.



| |                  
| | -----------------
| | Long-lived assets

Accrue evaluates its long-lived assets for
impairment whenever changes in circumstances indicate that the
carrying amount of the asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future
undiscounted cash flows expected to be generated by the asset.
If assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying
amounts exceed the fair values of the assets. Assets to be
disposed of are reported at the lower of carrying values or fair
values, less costs of disposal.



| |                    
| | -------------------
| | Revenue recognition

Revenues are derived from software licenses and
related services, which include implementation and integration,
technical support, training and consulting. License revenue is
recognized when a signed contract or other persuasive evidence
of an arrangement exists, the software has been shipped or
electronically delivered, the license fee is fixed or
determinable and collection of resulting receivables is
probable. Accrue generally does not allow product returns;
however, in the past, upon request by a customer and approval of
management, certain returns have been allowed. Therefore,
provision for estimated product returns are recorded at the time
the products are shipped.

For contracts with multiple elements (e.g.
products, maintenance, installation and other services), revenue
is allocated to delivered components, normally the license
component, of the arrangement using the residual value method
based on objective evidence of the fair value of the undelivered
elements, which is specific to Accrue. Accrue recognizes revenue
allocated to undelivered products when the criteria for license
revenue set forth above are met. Accrue recognizes revenue
allocated to maintenance fees, including amounts allocated from
product revenue, for ongoing customer support and product
updates ratably over the period of the maintenance contract.
Payments for maintenance fees are generally made in advance and
are non-refundable. For revenue allocated to consulting
services, such as installation and training, Accrue generally
recognizes revenue as the related services are performed.

In the event the Company enters into a contract
involving significant implementation, customization or services
that are essential to the functionality of the software, both
the product license revenues and services revenues are
recognized in accordance with the provisions of Statement of
Position (SOP) No. 81-1, Accounting for
Performance of Construction Type and Certain Production Type
Contracts. When reliable estimates are available for the
costs and efforts necessary to complete the implementation
services, Accrue accounts for the arrangements under the
percentage of completion contract method pursuant to SOP
No. 81-1. When such estimates are not available, the
completed contract method is utilized. Labor hours incurred are
used as the measure of progress towards completion. Revenue for
these arrangements is classified as license revenue and services
revenue based upon our estimates of fair value for each element
and is recognized based on the percentage-of-completion ratio
for the arrangement. A provision for estimated losses on
engagements is made in the period in which the loss becomes
probable and can be reasonably estimated.

75



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ACCRUE SOFTWARE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                   
| | ----------------------------------
| | Research and development
    costs

Research and development costs are charged to
operations as incurred. Software development costs are
capitalized beginning when a products technological
feasibility has been established and ending when a product is
available for general release to customers. Amounts that could
have been capitalized under Statement of Financial Accounting
Standards No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise
Marketed, have been insignificant and therefore no costs
have been capitalized to date.



| |                    
| | -------------------
| | Advertising expense

Accrue accounts for advertising costs as expense
in the period in which they are incurred. Advertising expense
for the years ended March 31, 2000, 2001 and March 30,
2002 was $203,000, $888,000 and $355,000, respectively.



| |                         
| | ------------------------
| | Stock-based compensation

Accrue accounts for stock-based employee
compensation arrangements in accordance with the provisions of
Accounting Principles Board (APB) Opinion
No. 25, and Accounting for Stock Issued to
Employees, Financial Accounting Standard Board
Interpretation No. 44 (FIN 44)
Accounting for Certain Transactions Involving Stock
Compensation - an Interpretation of APB 25, and
complies with the disclosure provisions of Statement of
Financial Accounting Standard (SFAS) No. 123,
Accounting for Stock-Based Compensation. Under APB
No. 25, compensation expense is based on the difference, if
any, on the date of the grant, between the fair value of
Accrues stock and the exercise price.

Accrue accounts for equity instruments issued to
non-employees in accordance with the provisions of SFAS
No. 123 and the Emerging Issues Task Force
(EITF) Issue No. 96-18, Accounting for
Equity Instruments that are Issued to other than Employees for
Acquiring, or in Connection with Selling Goods or
Services. Under these provisions, equity instruments are
recorded at their fair value on the measurement date, which is
typically the date of grant.



| |             
| | ------------
| | Income taxes

Deferred tax assets and liabilities are
determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amounts expected to be realized. The provision for income tax
expense is comprised of income taxes payable for the current
period, plus the net change in deferred tax amounts during the
period.



| |                   
| | ------------------
| | Net loss per share

Basic net loss per share is computed by dividing
the net loss available to common stockholders for the year by
the weighted average number of vested common shares outstanding
during the year. Diluted net loss per share is computed by
dividing the net loss for the year by the weighted average
number of vested common shares and potential common shares
outstanding during the year. However, as Accrue generated net
losses in all years presented, potential common shares, composed
of incremental common shares issuable upon the exercise of stock
options and shares subject to repurchase, are not included in
diluted net loss per share because such shares are anti-dilutive.

76



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ACCRUE SOFTWARE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

A reconciliation of shares used in the
calculation of net loss per share follows:

|                                       |                                                                                                       |                                          |   |           |   |           |   |          |   |  |   |         |  
|-------------------------------------- | ----------------------------------------------------------------------------------------------------- | ---------------------------------------- | - | --------- | - | --------- | - | -------- | - |  | - | ------- | -
|                                       |                                                                                                       |                                         
|                                       |                                                                                                       | Year Ended                              
|                                       |                                                                                                       |                                         
|                                       |                                                                                                       | March 31,                                |   | March 31, |   | March 30,
|                                       |                                                                                                       | 2000                                     |   | 2001      |   | 2002     
|                                       |                                                                                                       |                                          |   |           |   |          
|                                       |                                                                                                       |                                         
|                                       |                                                                                                       | (in thousands, except per share amounts)
|Net loss per share, basic and diluted: |                                                                                                       |                                          |   |           |   |           |   |          |   |  |   |        
|                                       | Net loss                                                                                              |                                          | $ | (21,119   | ) |           | $ | (211,219 | ) |  | $ | (12,107 | )
|                                       |                                                                                                       |                                          |   |           |   |           |   |          |   |  |   |        
|                                       | Weighted average shares of common stock
    outstanding                                               |                                          |   | 17,784    |   |           |   | 29,304   |   |  |   | 30,136  |  
|                                       | Less: Weighted average shares subject to
    repurchase                                               |                                          |   | (1,962    | ) |           |   | (1,346   | ) |  |   | (316    | )
|                                       |                                                                                                       |                                          |   |           |   |           |   |          |   |  |   |        
|                                       | Shares used in computing net loss per share,
    basic and diluted                                    |                                          |   | 15,822    |   |           |   | 27,958   |   |  |   | 29,820  |  
|                                       |                                                                                                       |                                          |   |           |   |           |   |          |   |  |   |        
|                                       | Net loss per share, basic and diluted                                                                 |                                          | $ | (1.33     | ) |           | $ | (7.55    | ) |  | $ | (0.41   | )
|                                       |                                                                                                       |                                          |   |           |   |           |   |          |   |  |   |        
|                                       | Antidilutive options and shares subject to
    repurchase not included in loss per share calculations |                                          |   | 5,229     |   |           |   | 6,978    |   |  |   | 5,171   |  
|                                       |                                                                                                       |                                          |   |           |   |           |   |          |   |  |   |        



| |                   
| | ------------------
| | Comprehensive loss

Comprehensive loss consists of net loss and
foreign currency translation adjustments and is presented in the
accompanying consolidated statements of stockholders
equity.



| |                                     
| | ------------------------------------
| | Recent accounting
    pronouncements

In June 1998, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging
Activities, which establishes accounting and reporting
standards for derivative instruments and hedging activities. It
requires an entity to recognize all derivatives as either assets
or liabilities in the balance sheet and measure those
instruments at fair value. Accrue adopted SFAS No. 133 (as
amended by SFAS No. 138) as required by SFAS No. 137,
Deferral of the Effective Date the FASB Statement
No. 133, effective April 1, 2001. To date,
Accrue has not engaged in derivative and hedging activities, and
accordingly the adoption of SFAS No. 133 did not have a
material effect on its financial position or results of
operations.

In June 2001, the FASB issued SFAS No. 141,
Business Combinations. SFAS No. 141 requires
the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the
pooling-of-interests method.

In June 2001, the FASB issued SFAS No. 142,
Goodwill and Other Intangible Assets, which is
effective for fiscal years beginning after March 15, 2001.
SFAS No. 142 requires, among other things, the
discontinuance of goodwill amortization. In addition, the
standard includes provisions upon adoption for the
reclassification of certain existing recognized intangibles as
goodwill, reassessment of the useful lives of existing
recognized intangibles, reclassification of certain intangibles
out of previously reported goodwill and the testing for
impairment of existing goodwill and other intangibles. Accrue
plans to adopt SFAS No. 142 in the first quarter of fiscal
2003. Accrue is currently assessing the potential impact of SFAS
No. 142 and does not expect the adoption of SFAS
No. 142 will have a material impact on its financial
position or results of operations.

In August 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, which is effective for fiscal years
beginning after December 15, 2001 and interim periods
within those fiscal periods. SFAS No. 144 supersedes FASB
Statement No. 121 and APB 30, however, SFAS
No. 144 retains the requirement of Opinion 30 to
report discontinued operations separately from continuing

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ACCRUE SOFTWARE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

operations and extends that reporting to a
component of an entity that either has been disposed of (by
sale, by abandonment, or in a distribution to owners) or is
classified as held for sale. SFAS No. 144 addresses
financial accounting and reporting for the impairment of certain
long-lived assets and for long-lived assets to be disposed of.
Accrue plans to adopt SFAS No. 144 in the first quarter of
fiscal 2003, and does not expect the adoption to have a material
impact on its financial position or results of operations.

In November 2001, the EITF reached a consensus on
EITF Issue No. 01-09, Accounting for Consideration
Given by a Vendor to a Customer or a Reseller of the
Vendors Products, which is a codification of EITF
Issue No. 00-14, 00-22 and 00-25. This issue presumes that
consideration from a vendor to a customer or reseller of the
vendors products to be a reduction of the selling prices
of the vendors products and, therefore, should be
characterized as a reduction of revenues when recognized in the
vendors income statement and could lead to negative
revenues under certain circumstances. Revenue reduction is
required unless consideration relates to a separate identifiable
benefit and the benefits fair value can be established.
Accrue implemented EITF Issue No. 01-09 in the quarter
ended March 30, 2002. The adoption of EITF Issue
No. 01-09 did not impact Accrues financial position
or results of operations.

In November 2001, the FASB discussed Topic D-103,
recharacterized as EITF Issue No. 01-14, Income
Statement Characterization of Reimbursements Received for
Out-of-Pocket Expenses Incurred. This issue
deals with classification in the income statement of incidental
expenses, that in practice are commonly referred to as
out-of-pocket expenses, incurred by entities that
provide services as part of their central ongoing operations.
The Task Force reached a consensus that reimbursements received
for out-of-pocket expenses incurred should be characterized as
revenue in the income statement. This issue is effective for
fiscal years beginning after December 15, 2001. There were
no material out of pocket expenses that required
reclassification on the implementation of EITF Issue
No. 01-14 in the last quarter of fiscal year 2002.

Note 3  Business
Combinations:



| |                                     
| | ------------------------------------
| | Pooling-of-interests
    combination

On September 30, 1999, Accrue completed a
merger with Marketwave Corporation (Marketwave) in which
Marketwave became a wholly owned subsidiary of Accrue. A total
of 2,880,475 shares of common stock were issued in exchange
for all the outstanding common stock of Marketwave based on a
conversion ratio of 0.1858 shares of Accrue common stock
for each share of Marketwave.

Accrue also assumed the remaining outstanding
Marketwave stock options that were subsequently exercised for
344,786 shares of Accrues common stock. The
transaction was accounted for as a pooling of interests. We
presented the fiscal year 2000 consolidated financial
statements and related data to represent the combined financial
results of the previously separate entities.



| |                     
| | --------------------
| | Purchase combination

On January 14, 2000, Accrue acquired
privately held, NeoVista Software, Inc. (NeoVista).
In exchange for the acquisition of all of NeoVistas
outstanding capital stock, Accrue issued NeoVista shareholders
1,782,078 shares of its common stock and reserved
approximately 550,000 additional shares for issuance upon
the exercise of stock options and warrants of NeoVista which
will be assumed by Accrue. The transaction was accounted for
using the purchase method of accounting and the results of
operations of NeoVista have been included in the consolidated
financial statements from the date of acquisition. The total
purchase price including acquisition related expenses was
approximately $127.9 million, of which $0.7 million
was allocated to in-process research and development and
expensed upon closing of the acquisition as it had not reached
technological feasibility and, in managements opinion, had
no alternative future use. The value of the purchased in-process
research and development was determined by estimating the
projected net cash flows related to the products, including
costs to complete the development of the technology and the
future revenues

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ACCRUE SOFTWARE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

to be earned upon commercialization of the
products. These cash flows were then discounted back to their
net present value. The projected net cash flows from the
projects were based on managements estimates of revenues
and operating profits related to the projects.

Intangibles of $2.4 million acquired
included developed technology, assembled workforce, sales
channel/customer relationships and trademarks. Purchased
goodwill, representing purchase price in excess of identified
tangible and intangible assets, of approximately
$127.9 million was recorded and is being amortized on a
straight-line basis over a useful life of three years.
Amortization expense of approximately $10.9 million and
$34.9 million were recorded for fiscal year 2000 and fiscal
year 2001, respectively. Accrue incurred merger-related
costs of $3.6 million in fiscal year 2000 in connection
with this transaction. These nonrecurring expenses related to
transaction costs, employee termination costs, legal and
accounting costs, write-off of equipment and other assets, and
redundant facility and other costs.

The following unaudited pro forma financial
information reflects the results of operations for the year
ended March 31, 2000 as if the acquisition of NeoVista had
occurred at the beginning of the fiscal year. The pro forma
results exclude the $0.7 million nonrecurring write-off of
in-process research and development.

|                                      |  |                           |         |  
|------------------------------------- |  | ------------------------- | ------- | -
|                                      |  | Year Ended March 31      
|                                      |  | 2000                     
|                                      |  |                          
|                                      |  | (in thousands, except per
|                                      |  | share information)       
|Revenue                               |  | $                         | 21,428  |  
|Net loss                              |  |                           | (63,239 | )
|Net loss per share, basic and diluted |  |                           | (4.00   | )

On July 14, 2000, Accrue acquired specific
assets of the InfoCharger division (InfoCharger) of Tantau
Software International, Inc. (Tantau). In exchange for specific
assets of InfoCharger, Accrue issued 1,667,667 shares of
its common stock in addition to a cash payment of
$5 million. The transaction was accounted for using the
purchase method of accounting and the results of operations of
InfoCharger have been included in the consolidated financial
statements from the date of acquisition. The total purchase
price including acquisition related expenses was approximately
$59.2 million, of which $1.5 million was allocated to
in-process research and development and expensed upon closing of
the acquisition as it had not reached technological feasibility
and, in managements opinion, had no alternative future
use. The value of the purchased in-process research and
development was determined by estimating the projected net cash
flows related to the products, including costs to complete the
development of the technology and the future revenues to be
earned upon commercialization of the products. These cash flows
were then discounted back to their net present value. The
projected net cash flows from the projects were based on
managements estimates of revenues and operating profits
related to the projects.

Tangible net assets acquired were
$0.3 million. Intangibles of $2.7 million acquired
included developed technology and assembled workforce. Purchased
goodwill, representing purchase price in excess of identified
tangible and intangible assets, of approximately
$54.7 million was recorded and is being amortized on a
straight-line basis over a useful life of three years.
Amortization expense of approximately $10.9 million was
recorded for fiscal year 2001.

On September 20, 2000, Accrue acquired
Aviator Holding Corporation and its direct and indirect
subsidiaries, including its wholly owned subsidiary Pilot
Software, Inc. (Pilot). In exchange for the
acquisition of all of Aviator Holding Corporations
outstanding common stock, Accrue issued 974,273 shares of
its common stock. The transaction was accounted for as a
purchase. The results of operations of Pilot have been included
in the consolidated financial statements from the date of
acquisition. The total purchase price including acquisition
related expenses was approximately $29.5 million, of which
$3.0 million was allocated to in-process research and
development and expensed upon closing of the acquisition as it
had not reached technological feasibility and, in
managements opinion, had no alternative future use. The
value of the

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ACCRUE SOFTWARE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

purchased in-process research and development was
determined by estimating the projected net cash flows related to
the products, including costs to complete the development of the
technology and the future revenues to be earned upon
commercialization of the products. These cash flows were then
discounted back to their net present value. The projected net
cash flows from the projects were based on managements
estimates of revenues and operating profits related to the
projects.

Tangible assets of $1.8 million acquired
included cash and marketable securities, receivables, prepaid,
and fixed assets. Intangibles of $8.7 million acquired
included developed technology, core technology, acquired
workforce and customer list. Purchased goodwill, representing
purchase price in excess of identified tangible and intangible
assets, of approximately $16.0 million was recorded and is
being amortized on a straight-line basis over a useful life of
three years. Amortization expense of approximately
$3.8 million was recorded for fiscal year 2001.

The following unaudited pro forma financial
information reflects the results of operations for the years
ended March 31, 2000 and March 31, 2001, as if the
acquisitions of Tantau and Pilot had occurred on April 1,
1999. The pro forma results exclude the $4.5 million
nonrecurring write-off of in-process research and development
for the year ended March 31, 2001, and include amortization
of intangibles of $14.6 million and $7.9 million for
the years ended March 31, 2000 and March 31, 2001,
respectively. The historical results of Tantau are based on its
results of operations for the period from February 11, 1999
(inception) to December 31, 1999 and for six months ended
June 30, 2000. The historical results of Pilot are based on
its results of operations for twelve months ended
December 31, 1999 and nine months ended September 30,
2000.

|                                      |  |                        |         |      |  |   |          |  
|------------------------------------- |  | ---------------------- | ------- | ---- |  | - | -------- | -
|                                      |  |                       
|                                      |  | Year Ended March 31   
|                                      |  |                       
|                                      |  | 2000                   |         | 2001
|                                      |  |                        |         |     
|                                      |  |                       
|                                      |  | (in thousands, except 
|                                      |  | per share information)
|Revenue                               |  | $                      | 34,537  |      |  | $ | 31,203   |  
|Net loss                              |  |                        | (53,250 | )    |  |   | (185,564 | )
|Net loss per share, basic and diluted |  |                        | (3.37   | )    |  |   | (6.64    | )



| |             
| | ------------
| | Divestitures

On June 26, 2001, Accrue Software, Inc., its
wholly owned subsidiary NeoVista Software, Inc., and JDA
Software Group, Inc. (JDA) signed a definitive
agreement pursuant to which Accrue transferred and sold to JDA
certain intellectual property and technology assets (including
the Decision Series, RDS Assort and RDS Profile software
products), and also transferred to JDA related personnel
responsible for developing the transferred technology. JDA
granted back to Accrue a royalty free license to use and
distribute the Decision Series software and other related
intellectual property in certain market segments. Accrue
received $4.9 million for the sale of the Decision Series
business of which $0.5 million was placed in an escrow
account which will be released to Accrue in June 2002, subject
to indemnification and escrow provisions set forth in the
Agreement. The Company has paid $0.1 million in transaction
costs related to the sale of Decision Series Assets. Since
Accrues basis in the intellectual property sold to JDA was
zero, Accrue recognized a net gain of $4.3 million from the
transaction. The $0.5 million held in escrow will be
recognized as an additional gain on sale by Accrue if received
as contemplated by the Agreement in June 2002.

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ACCRUE SOFTWARE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 4  Balance Sheet
Components:



| |                    
| | -------------------
| | Accounts receivable

|                                                            |  |                |        |           |  |   |       |  
|----------------------------------------------------------- |  | -------------- | ------ | --------- |  | - | ----- | -
|                                                            |  | March 31,      |        | March 30,
|                                                            |  | 2001           |        | 2002     
|                                                            |  |                |        |          
|                                                            |  |               
|                                                            |  | (in thousands)
|Accounts receivable                                         |  | $              | 5,319  |           |  | $ | 2,297 |  
|Less: Allowance for sales returns and doubtful
    accounts |  |                | (3,451 | )         |  |   | (345  | )
|                                                            |  |                |        |           |  |   |       |  
|                                                            |  | $              | 1,868  |           |  | $ | 1,952 |  
|                                                            |  |                |        |           |  |   |       |  



| |                                              
| | ---------------------------------------------
| | Prepaid expenses and other current
    assets

|                                 |  |                |       |           |  |   |     | 
|-------------------------------- |  | -------------- | ----- | --------- |  | - | --- | 
|                                 |  | March 31,      |       | March 30,
|                                 |  | 2001           |       | 2002     
|                                 |  |                |       |          
|                                 |  |               
|                                 |  | (in thousands)
|Prepaid expenses                 |  | $              | 641   |           |  | $ | 426 | 
|Restricted cash, current portion |  |                | 2,000 |           |  |   |    | 
|Other current assets             |  |                | 141   |           |  |   | 50  | 
|                                 |  |                |       |           |  |   |     | 
|                                 |  | $              | 2,782 |           |  | $ | 476 | 
|                                 |  |                |       |           |  |   |     | 



| |                       
| | ----------------------
| | Property and equipment

|                               |  |                |        |           |  |   |        |  
|------------------------------ |  | -------------- | ------ | --------- |  | - | ------ | -
|                               |  | March 31,      |        | March 30,
|                               |  | 2001           |        | 2002     
|                               |  |                |        |          
|                               |  |               
|                               |  | (in thousands)
|Computer equipment             |  | $              | 3,053  |           |  | $ | 2,955  |  
|Software                       |  |                | 722    |           |  |   | 573    |  
|Furniture and fixtures         |  |                | 727    |           |  |   | 752    |  
|Leasehold improvements         |  |                | 308    |           |  |   | 342    |  
|                               |  |                |        |           |  |   |        |  
|                               |  |                | 4,810  |           |  |   | 4,622  |  
|Less: Accumulated depreciation |  |                | (1,887 | )         |  |   | (2,728 | )
|                               |  |                |        |           |  |   |        |  
|                               |  | $              | 2,923  |           |  | $ | 1,894  |  
|                               |  |                |        |           |  |   |        |  



| |                  
| | -----------------
| | Intangible assets

|                               |  |                |        |           |  |   |        |  
|------------------------------ |  | -------------- | ------ | --------- |  | - | ------ | -
|                               |  | March 31,      |        | March 30,
|                               |  | 2001           |        | 2002     
|                               |  |                |        |          
|                               |  |               
|                               |  | (in thousands)
|Intangibles, cost              |  | $              | 13,735 |           |  | $ | 12,536 |  
|Less: Accumulated amortization |  |                | (3,352 | )         |  |   | (7,932 | )
|                               |  |                |        |           |  |   |        |  
|Intangibles, net               |  | $              | 10,383 |           |  | $ | 4,604  |  
|                               |  |                |        |           |  |   |        |  



| |                           
| | --------------------------
| | Goodwill impairment charge

During fiscal year 2001, Accrue performed
impairment assessments of the identifiable intangibles and
enterprise level goodwill recorded upon the acquisition for
stock of NeoVista, InfoCharger and Pilot, which were completed
on January 14, July 18 and August 24, 2000,
respectively. Accrues assessments were performed primarily
as a result of the decline in revenues in the second half of the
fiscal year 2001, the

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ACCRUE SOFTWARE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

anticipated decline in the projected operating
results due to the overall decline in the e-commerce industry
and the significant decline in its stock price since the date
the shares issued in each acquisition were valued. Goodwill
significantly exceeded the market capitalization prior to the
impairment charge. As a result of the review, Accrue recorded a
charge of $139.7 million in fiscal year 2001 to reduce its
enterprise level goodwill. The charge was determined based upon
the estimated discounted cash flows using a discount rate of
20%. The assumptions supporting the cash flows including the
discount rate were determined using Accrues best estimates.

During fiscal year 2002, we performed impairment
assessments of the intangible assets associated with the Pilot
acquisition, which are primarily comprised of purchased software
and technology. Accrues assessments were performed as a
result of the declining base of revenues of the Pilot products,
the anticipated decline in the projected operating results due
to the overall decline in the e-commerce industry and the
Companys focus on its core product, Accrue G2. Based
on our assessment, the book value of the intangible assets
associated with the developed and core technology exceeded the
estimated net realizable value of the Pilot products. As a
result of our review, we recorded a charge of $1.2 million
in fiscal year 2002 to reduce the intangible assets associated
with the Pilot acquisition to the estimated net realizable
value. The remaining identifiable intangible balance of
approximately $4.6 million, including $2.8 million
related to Pilot products, will be amortized over the remaining
term of the useful life of the assets established at time of
acquisition, which Accrue considers appropriate.



| |                    
| | -------------------
| | Accrued liabilities

|                          |  |                |       |           |  |   |       | 
|------------------------- |  | -------------- | ----- | --------- |  | - | ----- | 
|                          |  | March 31,      |       | March 30,
|                          |  | 2001           |       | 2002     
|                          |  |                |       |          
|                          |  |               
|                          |  | (in thousands)
|Compensation              |  | $              | 1,341 |           |  | $ | 896   | 
|Accrued professional fees |  |                | 821   |           |  |   | 333   | 
|Customer advances         |  |                | 480   |           |  |   | 354   | 
|Commission payable        |  |                | 393   |           |  |   | 141   | 
|Sales tax                 |  |                | 132   |           |  |   | 71    | 
|Other                     |  |                | 1,239 |           |  |   | 568   | 
|                          |  |                |       |           |  |   |       | 
|                          |  | $              | 4,406 |           |  | $ | 2,363 | 
|                          |  |                |       |           |  |   |       | 

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ACCRUE SOFTWARE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 5  Commitments and
Contingencies:



|    |                  
|--- | -----------------
|(a) | Lease obligations

Accrue leases office space and office equipment
under non-cancelable operating leases with various expiration
dates through 2005. Future minimum lease payments under
non-cancelable operating leases, minimum guaranteed royalty
payments, including commitments entered into subsequent to
March 30, 2002 are as follows (in thousands):

|            |  |           |       |           |  |          |      |       |  |   |     |  |  |   |       | 
|----------- |  | --------- | ----- | --------- |  | -------- | ---- | ----- |  | - | --- |  |  | - | ----- | 
|            |  |           |       |           |  | Minimum  |      |      
|            |  | Operating |       | Sub-lease |  | Royalty  |      |      
|Fiscal Year |  | Leases    |       | Income    |  | Payments |      | Total
|            |  |           |       |           |  |          |      |      
|2003        |  | $         | 877   |           |  | $        | (263 | )     |  | $ | 183 |  |  | $ | 797   | 
|2004        |  |           | 432   |           |  |          | (191 | )     |  |   | 150 |  |  |   | 391   | 
|2005        |  |           | 305   |           |  |          | (147 | )     |  |   | 17  |  |  |   | 175   | 
|2006        |  |           | 10    |           |  |          |     |       |  |   |    |  |  |   | 10    | 
|2007        |  |           | 10    |           |  |          |     |       |  |   |    |  |  |   | 10    | 
|Thereafter  |  |           | 19    |           |  |          |     |       |  |   |    |  |  |   | 19    | 
|            |  |           |       |           |  |          |      |       |  |   |     |  |  |   |       | 
|Total       |  | $         | 1,653 |           |  | $        | (601 | )     |  | $ | 350 |  |  | $ | 1,402 | 
|            |  |           |       |           |  |          |      |       |  |   |     |  |  |   |       | 

Rent expense, net of sub-lease income, was
$436,000, $1,014,000 and $1,442,000 for the years ended
March 31, 2000, 2001 and March 30, 2002, respectively.

In May 2002, in connection with the sale of
certain assets related to Pilot and HitList products to Pilot
Software Acquisition Corporation, an unrelated third party,
Accrue has sub-leased 60% of the Cambridge office facility to
Pilot Software Acquisition Corporation. Accrue retained rights
to use the Pilot and HitList software technology within its
Accrue G2 product pursuant to a separate license agreement
for a royalty fee of $200,000 payable in equal installments over
the next 24 months.



|    |           
|--- | ----------
|(b) | Litigation

On February 20, 1999, Execplan Sistemas
Executivos Ltda., a former distributor of our wholly-owned
subsidiary Pilot Software, Inc.s products in Brazil,
filed a Claim for Arbitration with the American Arbitration
Association in connection with Pilots failure to enter
into a new distribution agreement with Execplan when the prior
agreement between the parties terminated by its terms. Execplan
has made a claim for damages in the amount of $15 million.
Pilot denied Execplans claim and filed a counterclaim
alleging, among other things, breach of contract,
misappropriation of Pilot trade secrets and infringement of
Pilot copyrights. The arbitration proceedings will take place in
Boston, Massachusetts, and we intend to vigorously defend
against Execplans claim, which we believe to be without
merit. In addition, under the terms of the Agreement and Plan of
Merger dated as of August 24, 2000 among Accrue, Pilot,
Pilot Acquisition Corp., Aviator Holding Corporation and
Platinum Equity Holdings, LLC (the Pilot Merger
Agreement), we have a right of indemnification against
Platinum if damages awarded to Execplan in the arbitration
exceed $500,000.

The German Tax Authority is auditing the tax
returns of the German subsidiary of Pilot Software, which the
Company acquired in September 2001, for the tax years 1995-1999.
In connection with this audit, the German Tax Authority has
disputed the transfer pricing methodologies and other deductions
contained in those tax returns. The Tax Authority has issued a
notice of tax deficiency in the amount of 1.5 million DM
related to the tax returns for the years 1996 and 1997. The
Company is contesting these claims. In addition, under the terms
of the Pilot Merger Agreement, the Company has a right to
indemnification against Platinum

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ACCRUE SOFTWARE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Equity Holdings, LLC (Platinum) for damages
related to tax claims against Pilot Software, Inc. and its
subsidiaries arising prior to the date of the acquisition of
Pilot Software, Inc.

There can be no assurance that the matters
discussed above will be resolved without costly litigation, or
in a manner that is not materially adverse to our financial
position, results of operations or cash flows. No estimate can
be made of the possible loss or possible range of loss
associated with the resolution of these contingencies.
Furthermore, there can be no assurance that Accrue will be able
to enforce its indemnification right against Platinum, if
Platinum disputes such claims without undue cost or delay. As
additional information becomes available, Accrue will assess its
potential liability, if any.

Note 6  Borrowings:

On May 25, 1999, Accrue entered into an
irrevocable commitment with a financial institution for a
working capital line of credit under which Accrue can borrow up
to an aggregate of $2,000,000. This line of credit expired in
June 2001. In connection with the line of credit agreement,
Accrue granted the financial institution a warrant to purchase
14,000 shares of common stock. On May 16, 2000, the
financial institution elected to exercise the warrant and
14,000 shares of Accrue common stock were issued.

As part of the NeoVista acquisition, Accrue
assumed subordinated promissory notes of NeoVista. The
outstanding borrowings are collateralized by the capital
equipment purchases made under the promissory notes. The notes
bear interest at effective rates ranging from 13.7% to 14.7% per
annum. The balance of the subordinated promissory notes was paid
off in fiscal year 2001.

As part of the Pilot acquisition, Accrue assumed
a line of credit of $1,450,000 drawn by Pilot prior to the
acquisition. Accrue repaid the line of credit in fiscal year
2001. The line of credit bore interest at prime.

In June 2001 Accrue entered into a one-year
accounts receivable purchase agreement with a financial
institution under which the Company can borrow up to an
aggregate of $1.5 million, renewable annually. The
borrowing base under this agreement is the lesser of 80% of
eligible accounts receivable or $1.5 million. As of
March 30, 2002, Accrue has no borrowings pursuant to this
agreement.

Note 7  Stockholders
Equity:



| |                            
| | ---------------------------
| | Convertible preferred stock

At March 30, 2002, Accrue has no outstanding
convertible preferred stock of the 5 million shares
authorized. During 2000, all of the 10,353,000 issued and
outstanding shares of Accrues convertible preferred stock
were converted into common stock. 9,033,000 shares were
converted into common stock in connection with Accrues
initial public offering and the remaining 1,320,000 shares
were converted into common stock in connection with the
Marketwave acquisition.



| |             
| | ------------
| | Common stock

On August 4, 1999, Accrue issued
4,485,200 shares of its common stock at an initial public
offering price of $10 per share, raising $44,852,000 in gross
proceeds. Offering proceeds to Accrue, net of approximately
$4,040,000 in aggregate underwriters discounts, commissions and
related offering expenses, were approximately $40,810,000. At
March 30, 2002, Accrue had 741,013 shares of treasury
stock.



| |                   
| | ------------------
| | Stock option plans

Under Accrues 1996 Stock Option Plan (the
Plan), as amended, Accrue is authorized to issue up
to 12,167,670 shares of common stock. Under the Plan,
incentive options to purchase Accrues common stock may be
granted to employees at prices not lower than fair market value
at the date of grant, as determined by the Board of Directors.
Non-qualified stock options may be granted to employees,
directors and consultants, at

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ACCRUE SOFTWARE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

prices not lower than 85% of fair market value at
the date of grant, as determined by the Board of Directors. The
Board also has the authority to set the term of the options (no
longer than ten years from date of grant). Options granted
generally vest over four years. Unexercised options expire
30 days after termination of employment with Accrue.

In May 1999, the Board of Directors and
stockholders approved the 1999 Directors Option Plan
(Directors Plan). The Directors Plan
provides for automatic grant of an option to purchase
50,000 shares of common stock upon election of each
non-employee director and an additional option to purchase
5,000 shares of common stock annually thereafter. The
Directors Plan provides that initial options shall become
exercisable in installments as to 1/48 of the number of shares
subject to the option each month after the date of grant. The
exercise price of all stock options granted under the
Directors Plan shall be equal to the fair market value of
Accrues common stock on the date of grant of the option.
Options granted under the Directors Plan have a term of
ten years. Accrue is authorized to issue up to
450,000 shares of common stock for issuance under the
Directors Plan.

Accrue has, in connection with the purchase of
Marketwave, assumed the stock option plan of Marketwave. A total
of 566,000 shares of Accrues common stock have been
reserved for issuance under the assumed plan.

Accrue has, in connection with the purchase of
NeoVista, assumed the stock option plans of NeoVista, and issued
approximately 550,000 options and warrants to purchase shares of
its common stock in exchange for all options and warrants to
purchase shares of NeoVista common stock.

Concurrent with the acquisition of Pilot, Accrue
initiated the 2000 Non-Executive Stock Option Plan in September
2000. 743,000 shares were granted to former Pilot employees who
joined Accrue subsequent to the acquisition.

During January 2002, Accrue announced a voluntary
stock option exchange program for certain of its employees and
directors. Under the program, certain of Accrues employees
and directors were given the opportunity to cancel outstanding
stock options previously granted to them that had an exercise
price in excess of $4.13 per share in exchange for an equal
number of new options to be granted at a future date, which will
be at least six months and a day from the cancellation date,
provided such person remains an employee or director of the
Company. The exercise price of these new options will be equal
to the fair market value of Accrues common stock on the
date of grant, which is expected to be determined during
September 2002. Each new option will have a vesting commencement
date of September 30, 2001 and a three-year vesting
schedule, with  1/3 of the options vesting on the first
anniversary of the vesting commencement date (September 30,
2002) and  1/36 of the options vesting at the end of each
month for the succeeding 24 months. The exchange program is
not expected to result in any additional stock-based
compensation charge or variable plan accounting. During March
2002, 1.1 million options with a weighted average exercise
price of $ 19.82 were tendered and cancelled under this program.

85



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ACCRUE SOFTWARE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Activity under the Plans is as follows:

|                         |                   |                                      |       |                     |   |                |       |           |   |          |              |              |  |   |        |         |   |   |       |       | 
|------------------------ | ----------------- | ------------------------------------ | ----- | ------------------- | - | -------------- | ----- | --------- | - | -------- | ------------ | ------------ |  | - | ------ | ------- | - | - | ----- | ----- | 
|                         |                   |                                      |       |                    
|                         |                   |                                      |       | Outstanding Options
|                         |                   |                                      |       |                    
|                         |                   | Shares                               |       |                     |   | Weighted       |       | Weighted 
|                         |                   | Available                            |       |                     |   | Average        |       | Average  
|                         |                   | for                                  |       | Number              |   |                |       | Aggregate |   | Exercise
|                         |                   | Grant                                |       | of Shares           |   | Exercise Price |       | Price     |   | Price   
|                         |                   |                                      |       |                     |   |                |       |           |   |         
|                         |                   |                                     
|                         |                   | (in thousands except per share data)
|Balances, March 31, 1999 |                   |                                      | 1,671 |                     |   |                | 2,560 |           |   |          | $0.01-$ 0.75 |              |  | $ | 663    |         |   | $ | 0.26  |      
|                         | Shares reserved   |                                      |       | 1,948               |   |                |       |          |   |          |              |             |  |   |        |        |   |   |       |      | 
|                         | Options granted   |                                      |       | (3,206              | ) |                |       | 3,206     |   |          |              | $0.44-$50.81 |  |   |        | 48,018  |   |   | $     | 14.98 | 
|                         | Options exercised |                                      |       |                    |   |                |       | (2,130    | ) |          |              | $0.01-$12.92 |  |   |        | (874    | ) |   | $     | 0.48  | 
|                         | Options canceled  |                                      |       | 399                 |   |                |       | (399      | ) |          |              | $0.12-$50.38 |  |   |        | (4,956  | ) |   | $     | 12.33 | 
|                         |                   |                                      |       |                     |   |                |       |           |   |          |              |              |  |   |        |         |   |   |       |      
|Balances, March 31, 2000 |                   |                                      | 812   |                     |   |                | 3,237 |           |   |          | $0.01-$50.81 |              |  |   | 42,851 |         |   | $ | 13.07 |      
|                         | Shares reserved   |                                      |       | 3,545               |   |                |       |          |   |          |              |             |  |   |        |        |   |   |       |      | 
|                         | Options granted   |                                      |       | (5,713              | ) |                |       | 5,713     |   |          |              | $0.19-$33.88 |  |   |        | 59,428  |   |   | $     | 10.46 | 
|                         | Options exercised |                                      |       |                    |   |                |       | (552      | ) |          |              | $0.01-$ 9.00 |  |   |        | (929    | ) |   | $     | 1.68  | 
|                         | Options canceled  |                                      |       | 1,918               |   |                |       | (1,918    | ) |          |              | $0.12-$50.38 |  |   |        | (37,517 | ) |   | $     | 19.56 | 
|                         |                   |                                      |       |                     |   |                |       |           |   |          |              |              |  |   |        |         |   |   |       |      
|Balances, March 31, 2001 |                   |                                      | 562   |                     |   |                | 6,480 |           |   |          | $0.12-$50.81 |              |  |   | 63,833 |         |   | $ | 9.85  |      
|                         | Shares reserved   |                                      |       | 2,373               |   |                |       |          |   |          |              |             |  |   |        |        |   |   |       |      | 
|                         | Options expired   |                                      |       | (227                | ) |                |       |          |   |          |              |             |  |   |        |        |   |   |       |      | 
|                         | Options granted   |                                      |       | (2,460              | ) |                |       | 2,460     |   |          |              | $0.22-$ 0.89 |  |   |        | 990     |   |   | $     | 0.40  | 
|                         | Options exercised |                                      |       |                    |   |                |       | (97       | ) |          |              | $0.24-$ 1.00 |  |   |        | (52     | ) |   | $     | 0.53  | 
|                         | Options canceled  |                                      |       | 3,843               |   |                |       | (3,843    | ) |          |              | $0.12-$50.38 |  |   |        | (52,031 | ) |   | $     | 13.54 | 
|                         |                   |                                      |       |                     |   |                |       |           |   |          |              |              |  |   |        |         |   |   |       |      
|Balances, March 30, 2002 |                   |                                      | 4,091 |                     |   |                | 5,000 |           |   |          | $0.12-$50.81 |              |  | $ | 12,740 |         |   | $ | 2.55  |      
|                         |                   |                                      |       |                     |   |                |       |           |   |          |              |              |  |   |        |         |   |   |       |      

The following table summarizes information with
respect to stock options outstanding at March 30, 2002:

|                                     |                |                     |  |                  |       |                  |  |             |      |                  |  |   |       |  |  |  |       |  |  |   |       | 
|------------------------------------ | -------------- | ------------------- |  | ---------------- | ----- | ---------------- |  | ----------- | ---- | ---------------- |  | - | ----- |  |  |  | ----- |  |  | - | ----- | 
|                                     |                |                     |  |                 
|Options Outstanding                  |                |                    
|                                     |                | Options Exercisable
|                                     |                | Weighted Average    |  |                  |       |                 
|Range of                             |                | Number              |  | Remaining        |       | Weighted Average |  | Number      |      | Weighted Average
|Exercise Price                       |                | Outstanding         |  | Contractual Life |       | Exercise Price   |  | Exercisable |      | Exercise Price  
|                                     |                |                     |  |                  |       |                  |  |             |      |                 
|                                    
|(in thousands except per share data)
|$                                    | 0.12 - $ 0.28  |                     |  |                  | 1,085 |                  |  |             | 7.23 |                  |  | $ | 0.21  |  |  |  | 379   |  |  | $ | 0.21  | 
|$                                    | 0.35 - $ 0.75  |                     |  |                  | 1,730 |                  |  |             | 8.94 |                  |  | $ | 0.53  |  |  |  | 134   |  |  | $ | 0.56  | 
|$                                    | 0.89 - $ 2.06  |                     |  |                  | 1,498 |                  |  |             | 8.79 |                  |  | $ | 1.19  |  |  |  | 597   |  |  | $ | 1.29  | 
|$                                    | 2.25 - $ 4.14  |                     |  |                  | 163   |                  |  |             | 7.68 |                  |  | $ | 2.34  |  |  |  | 93    |  |  | $ | 2.33  | 
|$                                    | 7.55 - $14.13  |                     |  |                  | 93    |                  |  |             | 7.80 |                  |  | $ | 8.66  |  |  |  | 55    |  |  | $ | 8.64  | 
|$                                    | 16.25 - $24.00 |                     |  |                  | 401   |                  |  |             | 8.24 |                  |  | $ | 18.66 |  |  |  | 208   |  |  | $ | 19.07 | 
|$                                    | 31.50 - $50.81 |                     |  |                  | 30    |                  |  |             | 8.15 |                  |  | $ | 37.94 |  |  |  | 28    |  |  | $ | 36.81 | 
|                                     |                |                     |  |                  |       |                  |  |             |      |                  |  |   |       |  |  |  |       |  |  |   |       | 
|                                     |                |                     |  |                  | 5,000 |                  |  |             | 8.97 |                  |  | $ | 2.55  |  |  |  | 1,494 |  |  | $ | 4.42  | 
|                                     |                |                     |  |                  |       |                  |  |             |      |                  |  |   |       |  |  |  |       |  |  |   |       | 

At March 31, 2000, 2001 and March 30,
2002 vested options to purchase 525,000, 854,000 and 1,494,000
shares of common stock respectively, were unexercised.

86



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ACCRUE SOFTWARE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Employee
Stock Purchase Plan

In May 1999, the Board of Directors and
stockholders approved the 1999 Employee Stock Purchase Plan
(Purchase Plan).

Accrue intends for the Purchase Plan to qualify
under Section 423 of the Internal Revenue Code of 1986, as
amended. The Purchase Plan permits eligible employees to
purchase common stock through payroll deductions, which may not
exceed 20% of an employees compensation, at a price equal
to the lower of 85% of the fair market value of Accrues
common stock at the beginning or end of the offering period.
Accrue has reserved 700,000 shares of common stock for issuance
under the Purchase Plan. Accrue issued 176,000 and 120,000
shares for employee stock purchases in years ended
March 31, 2001 and March 30, 2002, respectively. At
March 31, 2001 and March 30, 2002, 463,000 and 347,000
shares, respectively, remained available for purchase under the
Purchase Plan.

Stock-based
compensation

During 1999, Accrue issued stock purchase rights
and options to certain employees under the Plan with exercise
prices below the deemed fair market value of Accrues
common stock at the date of grant. In accordance with the
requirements of APB 25, Accrue has recorded deferred stock-based
compensation for the differences between the purchase price of
stock issued to employees under stock purchase rights or the
exercise price of the stock options and the deemed fair market
value of Accrues stock at the date of grant. This deferred
stock-based compensation is amortized to expense over the period
during which Accrues right to repurchase the stock lapses
or options become exercisable, generally four years. Since
inception to March 30, 2002, Accrue has recorded deferred
stock-based compensation related to these options in the total
amount of $9,906,000, of which $4,344,000, $2,190,000 has been
amortized and $276,000 credited to expense during the years
ended March 31, 2000, 2001 and March 30, 2002,
respectively.

In January 2001, Mr. Rick Kreysar stepped
down from his role as president and chief executive officer.
Mr. Kreysars vesting in his option was accelerated by
one year based on his employment agreement with Accrue.
Approximately $1,104,000 was recorded in stock based
compensation expense for the year ended March 31, 2001
related to the acceleration of the vesting in his option.

If the stock-based compensation for the periods
had been allocated across the relevant functional expense
categories within operating expenses, the allocation would be as
follows:

|                           |  |                |       |           |  |           |       |  |  |   |      |  
|-------------------------- |  | -------------- | ----- | --------- |  | --------- | ----- |  |  | - | ---- | -
|                           |  |               
|                           |  | Years Ended   
|                           |  |               
|                           |  | March 31,      |       | March 31, |  | March 30,
|                           |  | 2000           |       | 2001      |  | 2002     
|                           |  |                |       |           |  |          
|                           |  |               
|                           |  | (in thousands)
|Research and development   |  | $              | 1,492 |           |  | $         | 764   |  |  | $ | (28  | )
|Sales and marketing        |  |                | 1,263 |           |  |           | 636   |  |  |   | (107 | )
|General and administrative |  |                | 1,589 |           |  |           | 790   |  |  |   | (141 | )
|                           |  |                |       |           |  |           |       |  |  |   |      |  
|                           |  | $              | 4,344 |           |  | $         | 2,190 |  |  | $ | (276 | )
|                           |  |                |       |           |  |           |       |  |  |   |      |  

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ACCRUE SOFTWARE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following information is presented in
accordance with the disclosure requirements of SFAS 123. The
fair value of option granted and shares purchased under the Plan
and the Purchase Plan has been estimated on the date of grant
using the minimum value method with the following weighted
average assumptions used for grants:

|                         |  |           |         |           |  |           |         |  |  |  |         | 
|------------------------ |  | --------- | ------- | --------- |  | --------- | ------- |  |  |  | ------- | 
|                         |  | March 31, |         | March 31, |  | March 30,
|                         |  | 2000      |         | 2001      |  | 2002     
|                         |  |           |         |           |  |          
|Risk-free interest rates |  |           | 6.75%   |           |  |           | 4.64%   |  |  |  | 4.74%   | 
|Expected life            |  |           | 5 years |           |  |           | 5 years |  |  |  | 5 years | 
|Expected dividends       |  |           |        |           |  |           |        |  |  |  |        | 
|Volatility               |  |           | 120%    |           |  |           | 192%    |  |  |  | 172%    | 

The weighted average fair value of the options
granted was $14.32, $9.43 and $0.40 per share for the years
ended March 31, 2000, 2001 and 2002, respectively. The
weighted average price of the stock sold under the Purchase Plan
was $5.40 and $0.34 for the years ended March 31, 2001 and
March 30, 2002, respectively.

Had compensation expense for our fixed stock
option and employee stock purchase plans been determined based
on the fair value at the grant date for the awards consistent
with the provisions of SFAS 123, the pro forma net loss would
have been reported as follows:

|                                 |  |                                              |         |           |  |           |          |   |  |   |         |  
|-------------------------------- |  | -------------------------------------------- | ------- | --------- |  | --------- | -------- | - |  | - | ------- | -
|                                 |  |                                             
|                                 |  | Years Ended                                 
|                                 |  |                                             
|                                 |  | March 31,                                    |         | March 31, |  | March 30,
|                                 |  | 2000                                         |         | 2001      |  | 2002     
|                                 |  |                                              |         |           |  |          
|                                 |  |                                             
|                                 |  | (in thousands, except per share information)
|Net loss  as reported           |  | $                                            | (21,119 | )         |  | $         | (211,219 | ) |  | $ | (12,107 | )
|Net loss  pro forma             |  | $                                            | (24,546 | )         |  | $         | (235,393 | ) |  | $ | (21,443 | )
|Net loss per share  as reported |  | $                                            | (1.33   | )         |  | $         | (7.55    | ) |  | $ | (0.41   | )
|Net loss per share  pro forma   |  | $                                            | (1.55   | )         |  | $         | (8.42    | ) |  | $ | (0.72   | )

Such pro forma disclosures may not be
representative of future compensation cost because options
generally vest over several years and additional grants are made
each year.

Note 8  Profit Sharing
Plan:

Accrue sponsors a 401(k) Profit Sharing Plan
covering all of its domestic employees. Under this plan,
participating employees may elect to contribute up to 20% of
their cash compensation, subject to certain limitations. Accrue
may elect to make contributions to the plan at the discretion of
the Board of Directors. No contributions have been made by
Accrue at March 31, 2002. All employee contributions are
100% vested.

Note 9  Income
Taxes:

There was no provision for income taxes for the
years ended March 31, 2000, 2001, and March 30, 2002,
respectively.

At March 30, 2002, Accrue has federal and
state net operating loss carryforwards of approximately
$102.0 million and $69.4 million, respectively,
available to offset future regular and alternative minimum
taxable income, if any. If not utilized, the federal net
operating loss carryforwards will begin to expire in 2011 and
the state net operating loss carryforwards have begun to expire
in 2001. Approximately $52.7 million and $10 million
of federal and state net operating loss carryforwards,
respectively, related to acquired entities have begun to expire
in 2002.

In addition, Accrue has federal and state tax
credits of approximately $3.4 million and
$2.4 million, respectively, to offset future tax
liabilities, if any. The federal tax credits will begin to
expire in 2017.

88



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ACCRUE SOFTWARE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

For federal and state tax purposes, a portion of
Accrues net operating loss carryforwards may be subject to
certain limitations on utilization in case of a change in
ownership, as defined by federal and state tax law.

Temporary differences which give rise to
significant portions of deferred tax assets and liabilities are
as follows:

|                                     |                                            |                |         |           |   |   |         |        |  
|------------------------------------ | ------------------------------------------ | -------------- | ------- | --------- | - | - | ------- | ------ | -
|                                     |                                            | March 31,      |         | March 30,
|                                     |                                            | 2001           |         | 2002     
|                                     |                                            |                |         |          
|                                     |                                            |               
|                                     |                                            | (in thousands)
|Deferred tax assets and liabilities: |                                            |                |         |           |   |   |         |       
|                                     | Net operating loss carryforwards           |                | $       | 35,730    |   |   | $       | 36,546 |  
|                                     | Capitalized start up costs                 |                |         | 2         |   |   |         | 71     |  
|                                     | Capitalized research and development costs |                |         | 2,745     |   |   |         | 2,272  |  
|                                     | Research and development credit            |                |         | 4,163     |   |   |         | 4,979  |  
|                                     | Other                                      |                |         | 565       |   |   |         | 282    |  
|                                     |                                            |                |         |           |   |   |         |       
|                                     |                                            |                | 43,205  |           |   |   | 44,150  |       
|                                     | Intangibles due to acquisitions            |                |         | (4,126    | ) |   |         | (2,307 | )
|                                     |                                            |                |         |           |   |   |         |       
|Deferred tax assets                  |                                            |                | 39,079  |           |   |   | 41,843  |       
|                                     |                                            |                |         |           |   |   |         |       
|Valuation allowance                  |                                            |                | (39,079 | )         |   |   | (41,843 | )     
|                                     |                                            |                |         |           |   |   |         |       
|                                     |                                            | $              |        |           |   | $ |        |       
|                                     |                                            |                |         |           |   |   |         |       

Accrue has recorded a full valuation allowance
due to uncertainties concerning the recovery of the deferred tax
assets. The valuation allowance increased by $28,527,000,
$5,005,000 and $2,764,000 in fiscal years 2000, 2001 and
2002, respectively.

The items accounting for the difference between
income taxes computed at the federal statutory rate and the
provision for income taxes are as follows:

|                                           |                                  |                |         |           |  |           |         |   |  |   |        |   | 
|------------------------------------------ | -------------------------------- | -------------- | ------- | --------- |  | --------- | ------- | - |  | - | ------ | - | 
|                                           |                                  |               
|                                           |                                  | Years Ended   
|                                           |                                  |               
|                                           |                                  | March 31,      |         | March 31, |  | March 30,
|                                           |                                  | 2000           |         | 2001      |  | 2002     
|                                           |                                  |                |         |           |  |          
|                                           |                                  |               
|                                           |                                  | (in thousands)
|Tax provision at statutory rates           |                                  | $              | (7,180  | )         |  | $         | (71,756 | ) |  | $ | (4,068 | )
|State taxes, net of federal benefit        |                                  |                | (1,232  | )         |  |           | (12,122 | ) |  |   | (687   | )
|Permanent differences and other            |                                  |                | 4,469   |           |  |           | 79,496  |   |  |   | 2,703  |  
|Research and development credit            |                                  |                |        |           |  |           | (623    | ) |  |   | 711    |  
|Increase in valuation allowance            |                                  |                | 28,527  |           |  |           | 5,005   |   |  |   | 2,763  |  
|Benefit assumed by acquisition of NeoVista |                                  |                | (24,584 | )         |  |           |        |   |  |   |       |  
|                                           |                                  |                |         |           |  |           |         |   |  |   |        |  
|                                           | Total provision for income taxes |                | $       |          |  |           | $       |  |  |   | $      |  | 
|                                           |                                  |                |         |           |  |           |         |   |  |   |        |  

89



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ACCRUE SOFTWARE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 10  Significant Customer
and Geographic Information:

Accrue has one reportable segment. Management
uses one measurement of profitability for its business. Accrue
markets its products and related services to customers in many
industries in the United States of America, Europe and
Asia-Pacific regions. Revenue by geographic region is as follows:

|                         |  |                |        |           |  |           |        |  |  |   |        | 
|------------------------ |  | -------------- | ------ | --------- |  | --------- | ------ |  |  | - | ------ | 
|                         |  |               
|                         |  | Years Ended   
|                         |  |               
|                         |  | March 31,      |        | March 31, |  | March 30,
|                         |  | 2000           |        | 2001      |  | 2002     
|                         |  |                |        |           |  |          
|                         |  |               
|                         |  | (in thousands)
|United States of America |  | $              | 16,693 |           |  | $         | 20,490 |  |  | $ | 8,676  | 
|Foreign                  |  |                | 2,171  |           |  |           | 5,144  |  |  |   | 5,632  | 
|                         |  |                |        |           |  |           |        |  |  |   |        | 
|                         |  | $              | 18,864 |           |  | $         | 25,634 |  |  | $ | 14,308 | 
|                         |  |                |        |           |  |           |        |  |  |   |        | 

No customer individually accounted for more than
10% of revenues in fiscal years 2000, 2001 and 2002. At
March 30, 2002, two customers accounted for 16% and 17%,
respectively, of total accounts receivable.

Note 11  Subsequent
Events:



| |                         
| | ------------------------
| | Compensation Arrangement

On April 17, 2002, Bruce Armstrong was
granted non-qualified stock options to purchase 300,000 shares
of the Companys common stock, which vest monthly over two
years, in his capacity as a Director and a consultant on
corporate development and capital raising matters. This option
grant will be accounted for as a non-employee option.
Additionally, Mr. Armstrong will receive a cash performance
bonus in an amount to be determined by the Board of Directors.



| |                                                               
| | --------------------------------------------------------------
| | Transfer of stock listing to Nasdaq
    SmallCap Market System

On May 12, 2002, Accrue Software, Inc.
announced the transfer of its stock listing from the Nasdaq
National Market System to the Nasdaq SmallCap Market System,
which was effective at the markets opening on May 13,
2002. The Companys common stock will continue to trade
under the symbol ACRU on the Nasdaq SmallCap Market.



| |                                                       
| | ------------------------------------------------------
| | Divestiture of Pilot and HitList technology
    assets

On May 30, 2002, Accrue Software, Inc. and
certain of its wholly owned subsidiaries including Pilot
Software, Inc., Marketwave Corporation, Accrue GmbH, Pilot
Software Ltd. and Thorn EMI Computer Software Ltd,
(collectively, Accrue) and Pilot Software
Acquisition Corp. and Pilot Software Services Corp.
(collectively, the Purchaser) executed an asset
purchase agreement (the Agreement) pursuant to which
Accrue sold and transferred to the Purchaser intellectual
property and technology assets (including the Pilot and HitList
software products), certain related customer contracts, certain
other assets and liabilities (collectively, the
Assets) for $1.5 million in cash. The
consideration of $1.5 million was based on the fair market
value of the Assets as of May 30, 2002, as determined in
good faith by Accrue and the Purchaser.

In connection with the sale of the Assets, Accrue
retained rights to use the Pilot and HitList software technology
within its Accrue G2 product pursuant to a separate license
agreement dated May 30, 2002 (the License
Agreement) for a royalty fee of $200,000 payable in equal
installments over the next 24 months. Additionally, Pilot
Software Services Corp., an entity affiliated with Pilot
Software Acquisition Corp., will provide to Accrue support
services for the Pilot and HitList software technology pursuant
to a separate support agreement dated May 30, 2002. Pilot
Software Acquisition Corp. and Pilot Software Services Corp. are
newly established companies formed by institutional investors
who are not affiliated with Accrue.

90



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##### Table of Contents



ACCRUE SOFTWARE, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                                                   
| | ----------------------------------------------------------------------------------
| | Release of Escrow balance from divestiture
    of Decision Series technology asset

On June 26, 2002, Accrue collected the
remaining balance of $0.5 million which was placed in an
escrow account subject to indemnification and escrow provisions
set forth in the agreement between Accrue and JDA Software
Group, Inc. in connection with the sale of Decision Series
technology asset in June 2001. Accrue will recognize
$0.5 million in the fiscal year 2003 as gain on sale
of technology asset in addition to $4.3 million gain
recognized in fiscal year 2002.

91



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##### Table of Contents



REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL
STATEMENT SCHEDULE

To the Board of Directors of Accrue Software, Inc.

Our audits of the consolidated financial
statements referred to in our report dated May 9, 2002,
except as to Note 11, which is as of June 26, 2002,
appearing in the 2002 Annual Report to Shareholders of Accrue
Software, Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report
on Form 10-K) also included an audit of the financial
statement schedule listed in Item 14(a)(2) of this
Form 10-K. In our opinion, the financial statement schedule
presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related
consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

San Jose, California

May 9, 2002


92



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SCHEDULE II

ACCRUE SOFTWARE, INC.

VALUATION AND QUALIFYING ACCOUNTS

(In thousands)


|                                                   |                         |                   |   |           |  |            |   |             |  |  |   |        |   |  |   |        | 
|-------------------------------------------------- | ----------------------- | ----------------- | - | --------- |  | ---------- | - | ----------- |  |  | - | ------ | - |  | - | ------ | 
|                                                   |                         | Balance at        |   |           |  |            |   | Balance at 
|                                                   |                         | Beginning of Year |   | Additions |  | Write-Offs |   | End of Year
|                                                   |                         |                   |   |           |  |            |   |            
|Allowance for sales returns and doubtful accounts: |                         |                   |   |           |  |            |   |             |  |  |   |        |   |  |   |       
|                                                   | Year end March 31, 2000 |                   | $ | 121       |  |            | $ | 419         |  |  | $ | (123   | ) |  | $ | 417    | 
|                                                   | Year end March 31, 2001 |                   |   | 417       |  |            |   | 3,268       |  |  |   | (594   | ) |  |   | 3,451  | 
|                                                   | Year end March 30, 2002 |                   |   | 3,451     |  |            |   | 106         |  |  |   | (3,212 | ) |  |   | 345    | 
|Valuation allowance for deferred tax assets:       |                         |                   |   |           |  |            |   |             |  |  |   |        |   |  |   |       
|                                                   | Year end March 31, 2000 |                   |   | 5,547     |  |            |   | 28,527      |  |  |   |       |   |  |   | 34,074 | 
|                                                   | Year end March 31, 2001 |                   |   | 34,074    |  |            |   | 5,005       |  |  |   |       |   |  |   | 39,079 | 
|                                                   | Year end March 30, 2002 |                   |   | 39,079    |  |            |   | 2,764       |  |  |   |       |   |  |   | 41,843 | 

93



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this Report be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                      
| | ---------------------
| | ACCRUE SOFTWARE, INC.



| |     |                       
| | --- | ----------------------
| | By: | /s/ JONATHAN D. BECHER

| |                                                  
| | -------------------------------------------------
| |                                                  
| | Jonathan D. Becher                               
| | Interim President and Chief Executive
    Officer
| | (Principal Executive Officer)                    



| |     |                      
| | --- | ---------------------
| | By: | /s/ GREGORY S. CARSON

| |                        
| | -----------------------
| |                        
| | Gregory S. Carson      
| | Chief Financial Officer

Date: June 28, 2002

Pursuant to the requirements of the Securities
Exchange Act of 1934, this amendment to the Annual Report on
Form 10-K has been signed by the following persons in the
capacities and on the dates indicated.

|                                         |  |                                                                                 |  |              
|---------------------------------------- |  | ------------------------------------------------------------------------------- |  | -------------
|Signature                                |  | Title                                                                           |  | Date         
|                                         |  |                                                                                 |  |              
|                                        
|/s/ JONATHAN D. BECHERJonathan D. Becher |  | Interim President and Chief Executive Officer
    (Principal Executive Officer) |  | June 28, 2002
|                                        
|/s/ GREGORY S. CARSONGregory S. Carson   |  | Chief Financial Officer (Principal Financial and
    Accounting Officer)        |  | June 28, 2002
|                                        
|/s/ BRUCE ARMSTRONGBruce Armstrong       |  | Director                                                                        |  | June 28, 2002
|                                        
|/s/ YORGEN EDHOLMYorgen Edholm           |  | Director                                                                        |  | June 28, 2002
|                                        
|/s/ DAVID FOLKMANDavid Folkman           |  | Director                                                                        |  | June 28, 2002
|                                        
|/s/ MAX D. HOPPERMax D. Hopper           |  | Director                                                                        |  | June 28, 2002
|                                        
|/s/ ZEV LADERMANZev Laderman             |  | Director                                                                        |  | June 28, 2002
|                                        
|/s/ JONATHAN NELSONJonathan Nelson       |  | Director                                                                        |  | June 28, 2002
|                                        
|/s/ ROBERT SMELICKRobert Smelick         |  | Chairman of the Board of Directors                                              |  | June 28, 2002

94



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Exhibit Index

|        |     |                     |  |                                                                                                                                                                                                                                                                                                     |  |       |  |          |  |          |     |  |  |  |  | 
|------- | --- | ------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----- |  | -------- |  | -------- | --- |  |  |  |  | 
|        |     |                     |  |                                                                                                                                                                                                                                                                                                     |  |      
|        |     |                     |  | Incorporated by Reference                                                                                                                                                                                                                                                                           |  |      
|Exhibit |     |                     |  |                                                                                                                                                                                                                                                                                                     |  | Filed
|Number  |     | Exhibit Description |  | Form                                                                                                                                                                                                                                                                                                |  | Date  |  | Number   |  | Herewith
|        |     |                     |  |                                                                                                                                                                                                                                                                                                     |  |       |  |          |  |         
|        | 1.1 |                     |  | Underwriting Agreement dated July 29, 1999                                                                                                                                                                                                                                                          |  | S-1   |  | 5/27/99  |  |          | 1.1 |  |  |  |  | 
|        | 2.1 |                     |  | Form of Agreement and Plan of Merger and
    Reorganization dated at September 14, 1999, among Accrue
    Software, Inc., Marketwave Acquisition Corp., Marketwave
    Corporation and Shareholders of Marketwave Corporation                                                                       |  | 8-K   |  | 10/12/99 |  |          | 2.1 |  |  |  |  | 
|        | 2.2 |                     |  | Form of Agreement and Plan of Merger and
    Reorganization dated at November 17, 1999, among Accrue
    Software, Inc., NeoVista Acquisition Corp. and NeoVista
    Software, Inc.                                                                                                                 |  | 8-K   |  | 1/31/00  |  |          | 2.1 |  |  |  |  | 
|        | 2.3 |                     |  | Form of Asset Purchase Agreement dated as of
    June 30, 2000, by and between the Accrue Software, Inc.,
    Tantau Software, Inc., and Tantau Software International, Inc.                                                                                                                        |  | 8-K   |  | 7/26/00  |  |          | 2.1 |  |  |  |  | 
|        | 2.4 |                     |  | Form of Agreement and Plan of Merger dated as of
    August 24, 2000, among Accrue Software, Inc., Aviator
    Holding Corporation, Pilot Software, Inc. and the sole
    stockholder of Aviator Holding Corp.                                                                                      |  | 8-K   |  | 9/20/00  |  |          | 2.1 |  |  |  |  | 
|        | 2.5 |                     |  | Form of Asset Purchase Agreement dated as of
    May 30, 2002, by and between Accrue Software, Inc., Pilot
    Software, Inc., Marketwave Corporation, Accrue GmbH, Pilot
    Software Ltd, Thorn EMI Computer Software Ltd, Pilot Software
    Acquisition Corp. and Pilot Software Services Corp. |  | 8-K   |  | 6/13/02  |  |          | 2.1 |  |  |  |  | 
|        | 2.6 |                     |  | Asset Purchase Agreement dated as of
    June 26, 2001 among Accrue Software, Inc., NeoVista
    Software, Inc. and JDA Software Group, Inc.                                                                                                                                                        |  | 8-K   |  | 7/11/01  |  |          | 2.1 |  |  |  |  | 
|        | 3.1 |                     |  | Amended and Restated Certificate of Incorporation
    of Accrue Software, Inc.                                                                                                                                                                                                                      |  | S-1   |  | 5/27/99  |  |          | 3.1 |  |  |  |  | 
|        | 3.2 |                     |  | Amended and Restated Certificate of Incorporation
    of Accrue Software, Inc. (proposed)                                                                                                                                                                                                           |  | S-1   |  | 5/27/99  |  |          | 3.2 |  |  |  |  | 
|        | 3.3 |                     |  | Amended and Restated Bylaws of Accrue Software,
    Inc.                                                                                                                                                                                                                                            |  | S-1/A |  | 7/6/99   |  |          | 3.2 |  |  |  |  | 
|        | 4.1 |                     |  | Specimen Stock Certificate                                                                                                                                                                                                                                                                          |  | S-1/A |  | 7/20/99  |  |          | 4.1 |  |  |  |  | 
|        | 4.2 |                     |  | Form of Investor Rights Agreement, dated
    September 30, 1999, among Accrue Software, Inc. and the
    Shareholders of Marketwave Corporation                                                                                                                                                     |  | 8-K   |  | 10/12/99 |  |          | 4.1 |  |  |  |  | 
|        | 4.3 |                     |  | Marketwave Corporation 1997 Stock Option Plan                                                                                                                                                                                                                                                       |  | S-8   |  | 2/1/00   |  |          | 4.1 |  |  |  |  | 
|        | 4.4 |                     |  | NeoVista Software, Inc. 1991 Incentive Stock
    Option Plan                                                                                                                                                                                                                                        |  | S-8   |  | 2/1/00   |  |          | 4.2 |  |  |  |  | 
|        | 4.5 |                     |  | NeoVista Software, Inc. 1991 Non-Qualified Stock
    Option Plan                                                                                                                                                                                                                                    |  | S-8   |  | 2/1/00   |  |          | 4.3 |  |  |  |  | 
|        | 4.6 |                     |  | 2000 Non-Executive Stock Option Plan                                                                                                                                                                                                                                                                |  | S-8   |  | 6/29/01  |  |          | 4.6 |  |  |  |  | 
|        | 4.7 |                     |  | Form of Investors Rights Agreement, dated
    as of July 14, 2000, by and between Accrue Software, Inc.
    and Tantau Software, Inc.                                                                                                                                                              |  | 8-K   |  | 7/26/00  |  |          | 4.1 |  |  |  |  | 



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##### Table of Contents



|        |      |                     |  |                                                                                                                                                                                                                                                                                                                            |  |         |  |          |  |          |       |      |  |  |  | 
|------- | ---- | ------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------- |  | -------- |  | -------- | ----- | ---- |  |  |  | 
|        |      |                     |  |                                                                                                                                                                                                                                                                                                                            |  |        
|        |      |                     |  | Incorporated by Reference                                                                                                                                                                                                                                                                                                  |  |        
|Exhibit |      |                     |  |                                                                                                                                                                                                                                                                                                                            |  | Filed  
|Number  |      | Exhibit Description |  | Form                                                                                                                                                                                                                                                                                                                       |  | Date    |  | Number   |  | Herewith
|        |      |                     |  |                                                                                                                                                                                                                                                                                                                            |  |         |  |          |  |         
|        | 4.8  |                     |  | Form of Investor Rights Agreement, dated
    September 20, 2000, between the Accrue Software, Inc. and
    the sole stockholder of Aviator Holding Corp.                                                                                                                                                                   |  | 8-K     |  | 9/21/00  |  |          | 4.1   |      |  |  |  | 
|        | 4.9  |                     |  | Offer to Employees and Directors of Accrue to
    Exchange Options, dated January 31, 2002                                                                                                                                                                                                                                 |  | SC TO-I |  | 1/31/02  |  |          | (a    | )(1) |  |  |  | 
|        | 10.1 |                     |  | Form of Indemnification Agreement between Accrue
    Software, Inc. and each of its officers and directors                                                                                                                                                                                                                 |  | S-1     |  | 5/27/99  |  |          | 10.1  |      |  |  |  | 
|        | 10.2 |                     |  | Common Stock Purchase Warrant issued to Sterling
    Payot Company on May 3, 1996, exercisable for 350,000
    shares of Common Stock and letter amendment dated May 23,
    1999 between Accrue Software, Inc. and Sterling Payot Company                                                                                 |  | S-1     |  | 5/27/99  |  |          | 10.2  |      |  |  |  | 
|        | 10.3 |                     |  | 1996 Stock Plan, as amended August 13, 1998,
    May 23, 1999, and August 31, 2000 and form of
    agreement thereunder                                                                                                                                                                                                    |  | 10-Q    |  | 11/14/00 |  |          | 10.3  |      |  |  |  | 
|        | 10.4 |                     |  | Employment letter agreement effective February
    1996 between Accrue Software, Inc. and Bob Page                                                                                                                                                                                                                         |  | S-1     |  | 5/27/99  |  |          | 10.4  |      |  |  |  | 
|        | 10.5 | *                   |  | Software License Agreement dated July 1,
    1997 between Accrue Software, Inc. and VI/ Visualize, Inc.                                                                                                                                                                                                                    |  | S-1     |  | 5/27/99  |  |          | 10.5  |      |  |  |  | 
|        | 10.6 |                     |  | Loan and Security Agreement dated
    September 19, 1997 between Accrue Software, Inc. and
    Silicon Valley Bank, as amended by the Loan Modification
    Agreement dated April 9, 1999                                                                                                                                  |  | S-1     |  | 5/27/99  |  |          | 10.6  |      |  |  |  | 
|        | 10.7 |                     |  | Settlement Agreement dated March 3, 1998
    between Accrue Software, Inc. and Simon Roy, as amended by
    Amendment No. 1 dated April 29, 1998                                                                                                                                                                           |  | S-1     |  | 5/27/99  |  |          | 10.7  |      |  |  |  | 
|        | 10.8 |                     |  | Settlement Agreement and Mutual Release dated
    May 13, 1998 between Accrue Software, Inc. and William R.
    Stein                                                                                                                                                                                                      |  | S-1     |  | 5/27/99  |  |          | 10.8  |      |  |  |  | 
|        | 10.9 |                     |  | Employment letter agreement dated June 16,
    1998 between Accrue Software, Inc. and Richard D. Kreysar                                                                                                                                                                                                                   |  | S-1     |  | 5/27/99  |  |          | 10.9  |      |  |  |  | 
|        | 10.1 | 0                   |  | Second Amended and Restated Investor Rights
    Agreement dated August 13, 1998                                                                                                                                                                                                                                            |  | S-1     |  | 5/27/99  |  |          | 10.10 |      |  |  |  | 
|        | 10.1 | 1                   |  | Employment letter agreement dated
    November 5, 1998 between Accrue Software, Inc. and Brett
    Kilpatrick                                                                                                                                                                                                              |  | S-1     |  | 5/27/99  |  |          | 10.11 |      |  |  |  | 
|        | 10.1 | 2                   |  | Standard Sublease dated February 25, 1999
    between Accrue Software, Inc. and Premisys Communications, Inc.,
    as sublessor, and Lease Agreement dated June 4, 1998
    between Premisys Communications, Inc. and Aetna Life Insurance
    Company, as master landlord, for 48634 Milmont Drive, Fremont,
    CA 94538 |  | S-1     |  | 5/27/99  |  |          | 10.12 |      |  |  |  | 
|        | 10.1 | 3*                  |  | OEM Agreement dated March 29, 1999 between
    Accrue Software, Inc. and Informix Software, Inc.                                                                                                                                                                                                                           |  | S-1     |  | 5/27/99  |  |          | 10.13 |      |  |  |  | 
|        | 10.1 | 4                   |  | 1999 Employee Stock Purchase Plan dated
    May 23, 1999 and form of agreement thereunder                                                                                                                                                                                                                                  |  | S-1     |  | 5/27/99  |  |          | 10.14 |      |  |  |  | 



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|        |      |                     |  |                                                                                                                                        |  |        |  |          |  |          |       |  |  |  |  | 
|------- | ---- | ------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------- |  | ------ |  | -------- |  | -------- | ----- |  |  |  |  | 
|        |      |                     |  |                                                                                                                                        |  |       
|        |      |                     |  | Incorporated by Reference                                                                                                              |  |       
|Exhibit |      |                     |  |                                                                                                                                        |  | Filed 
|Number  |      | Exhibit Description |  | Form                                                                                                                                   |  | Date   |  | Number   |  | Herewith
|        |      |                     |  |                                                                                                                                        |  |        |  |          |  |         
|        | 10.1 | 5                   |  | 1999 Directors Stock Option Plan dated
    May 23, 1999 and form of agreement thereunder                                              |  | S-1    |  | 5/27/99  |  |          | 10.15 |  |  |  |  | 
|        | 10.1 | 6                   |  | Loan Modification Agreement with Silicon Valley
    Bank dated June 22, 1999                                                           |  | S-1/A  |  | 7/6/99   |  |          | 10.16 |  |  |  |  | 
|        | 10.1 | 7                   |  | Warrant Purchase Agreement with Silicon Valley
    Bank dated May 25, 1999                                                             |  | S-1    |  | 5/27/99  |  |          | 10.17 |  |  |  |  | 
|        | 10.1 | 8                   |  | Employment letter agreement dated March 3,
    1999 between Accrue Software, Inc. and Gregory C. Walker                                |  | S-1    |  | 5/27/99  |  |          | 10.18 |  |  |  |  | 
|        | 10.1 | 9                   |  | Employment letter agreement dated
    September 22, 1999 between Accrue Software, Inc. and Bob
    Wyman                               |  | 10-Q   |  | 8/14/00  |  |          | 10.19 |  |  |  |  | 
|        | 10.2 | 0                   |  | Employment letter agreement dated
    November 28, 1999 between Accrue Software, Inc. and
    Jonathan Becher                          |  | 10-Q   |  | 8/14/00  |  |          | 10.20 |  |  |  |  | 
|        | 10.2 | 1                   |  | Employment letter agreement dated May 26,
    2000 between Accrue Software, Inc. and Ron Yu                                            |  | 10-Q   |  | 8/14/00  |  |          | 10.20 |  |  |  |  | 
|        | 10.2 | 2*                  |  | Software License Agreement dated as of
    July 1, 2000 between VI/Visualize, Inc. and Accrue
    Software, Inc.                       |  | 10-Q   |  | 11/14/00 |  |          | 10.22 |  |  |  |  | 
|        | 10.2 | 3                   |  | Separation Agreement and Mutual Release dated
    March 24, 2001 between Richard D. Kreysar and Accrue
    Software, Inc.              |  | 10-K   |  | 6/29/01  |  |          | 10.25 |  |  |  |  | 
|        | 10.2 | 4                   |  | Employment letter agreement dated
    February 26, 2001 between Accrue Software, Inc. and Judson
    Groshong                          |  | 10-K/A |  | 7/6/04   |  |          | 10.24 |  |  |  |  | 
|        | 10.2 | 5                   |  | Employment letter agreement dated March 8,
    2001 between Accrue Software, Inc. and Jeffery Walker                                   |  | 10-K   |  | 6/29/01  |  |          | 10.25 |  |  |  |  | 
|        | 10.2 | 6                   |  | Separation Agreement and Mutual Release dated
    June 12, 2001 between Gregory C. Walker and Accrue
    Software, Inc.                |  | 10-K   |  | 6/29/01  |  |          | 10.26 |  |  |  |  | 
|        | 10.2 | 7**                 |  | Software License Agreement between Lycos Europe
    GMBH and Accrue Software, Inc. dated as of June 22, 2001                           |  | 10-Q   |  | 11/13/02 |  |          | 10.27 |  |  |  |  | 
|        | 10.2 | 8                   |  | Employment letter agreement dated
    September 19, 2001 between Accrue Software, Inc. and
    Richard J. DAngelo                     |  | 10-Q   |  | 2/12/02  |  |          | 10.28 |  |  |  |  | 
|        | 10.2 | 9                   |  | Employment letter agreement dated May 15,
    2001 between Accrue Software, Inc. and P.K. Karnik                                       |  | 10-Q   |  | 11/13/02 |  |          | 10.29 |  |  |  |  | 
|        | 10.3 | 0                   |  | Employment letter agreement dated May 23,
    2001 between Accrue Software, Inc. and Denise Senter-Loyola                              |  | 10-Q   |  | 11/13/02 |  |          | 10.29 |  |  |  |  | 
|        | 10.3 | 1                   |  | Employment letter agreement dated October 3,
    2001 between Accrue Software, Inc. and Greg Carson                                    |  | 10-Q   |  | 2/12/02  |  |          | 10.31 |  |  |  |  | 
|        | 10.3 | 2                   |  | Form of License Agreement, dated as of
    May 30, 2002, by and between Accrue Software, Inc. and
    Pilot Software Acquisition Corp. |  | 8-K    |  | 6/13/02  |  |          | 2.1   |  |  |  |  | 
|        | 10.3 | 3                   |  | Form of Support Agreement dated as of
    May 30, 2000 by and between the Accrue Software, Inc. and
    Pilot Software Services Corp.  |  | 8-K    |  | 6/13/02  |  |          | 2.1   |  |  |  |  | 



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|        |      |                     |  |                                                                                                                                     |  |       |  |        |  |          |  |  |  |  |   | 
|------- | ---- | ------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------- |  | ----- |  | ------ |  | -------- |  |  |  |  | - | 
|        |      |                     |  |                                                                                                                                     |  |      
|        |      |                     |  | Incorporated by Reference                                                                                                           |  |      
|Exhibit |      |                     |  |                                                                                                                                     |  | Filed
|Number  |      | Exhibit Description |  | Form                                                                                                                                |  | Date  |  | Number |  | Herewith
|        |      |                     |  |                                                                                                                                     |  |       |  |        |  |         
|        | 10.3 | 4                   |  | Form of Second Amendment to Sublease between
    Premisys Communications, Inc. and Accrue Software Inc. dated
    February 11, 2002 |  |       |  |        |  |          |  |  |  |  | X | 
|        | 10.3 | 5                   |  | Form of Office Lease Agreement between EOP-One
    Canal Park, LLC and Accrue Software Inc., dated 3/14/01                          |  |       |  |        |  |          |  |  |  |  | X | 
|        | 10.3 | 6                   |  | Letter agreement between Accrue Software, Inc.
    and Bruce Armstrong dated April 17, 2002                                         |  |       |  |        |  |          |  |  |  |  | X | 
|        | 10.3 | 7                   |  | Form of Separation Agreement and Mutual Release
    dated May 10, 2001 between Jeffrey Walker and Accrue
    Software, Inc.         |  |       |  |        |  |          |  |  |  |  | X | 
|        | 10.3 | 8                   |  | Form of General Release dated May 10, 2001
    between Richard DAngelo and Accrue Software, Inc.                                   |  |       |  |        |  |          |  |  |  |  | X | 
|        | 23.1 |                     |  | Consent of Independent Accountants                                                                                                  |  |       |  |        |  |          |  |  |  |  | X | 



---



|   |                                                                                                                                                        
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|*  | Confidential treatment has been granted with
    respect to certain portions of this Exhibit which has been filed
    separately with the Commission.  
|  
|** | Confidential treatment has been requested with
    respect to certain portions of this Exhibit which has been filed
    separately with the Commission.