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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

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

                                    FORM 10-Q


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

                FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2001
                                       OR

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

              FOR THE TRANSITION PERIOD FROM ________ TO ________

                        COMMISSION FILE NUMBER: 000-31155

                              EVOLVE SOFTWARE, INC.
             (Exact name of registrant as specified in its charter)

            DELAWARE                                       94-3219745
(State or other jurisdiction of                         (I.R.S. Employer
incorporation  or  organization)                       Identification No.)

1400 65TH STREET, SUITE 100, EMERYVILLE, CA              94608
(Address  of  principal  executive  offices)           (Zip Code)

       Registrant's telephone number, including area code: (510) 428-6000

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

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001
                                    par value


                              __________________


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

     The  aggregate  market  value  of  the  voting  common  stock  held  by
non-affiliates  of  the  registrant  as  of  February  8, 2002 was approximately
$6,603,516  based  upon  the  closing  sale  price reported for that date on the
NASDAQ National Market. Shares of common stock held by each officer and director
and by each person who owns more than 5% or more of the outstanding common stock
have  been  excluded  because  such persons may be deemed to be affiliates. This
determination  of  affiliate  status  is  not  necessarily  conclusive for other
purposes.

     The  number  of  shares  outstanding of the registrant's common stock as of
January  31,  2002  was  44,729,867.

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<PAGE>
                              EVOLVE SOFTWARE, INC.

                                    FORM 10-Q

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
                         PART I - FINANCIAL INFORMATION

Item  1.    Financial  Statements

            Condensed  Consolidated  Balance Sheets  (unaudited)
            As of December 31, 2001  and  June  30,  2001 . . . . . . . . . . .2

            Condensed  Consolidated  Statements  of  Operations
            (unaudited) For the Three  and  Six  Months  Ended
            December  31,  2001  and  2000. . . . . . . . . . . . . . . . . . .3

            Consolidated Statements of Cash Flows (unaudited)
            For the Six  Months Ended December 31, 2001 and 2000. . . . . . . .4

            Notes to Condensed Consolidated Financial  Statements . . . . . . .5

Item 2.     Management's  Discussion  and  Analysis  of Financial
            Condition  and  Results  of Operations. . . . . . . . . . . . . . 14

Item 3.     Quantitative and Qualitative Disclosures  About  Market  Risk . . 28


                          PART II - OTHER INFORMATION

Item  1.     Legal  Proceedings. . . . . . . . . . . . . . . . . . . . . . . .29

Item  2.     Changes  in  Securities  and  Use of Proceeds . . . . . . . . . .29

Item  3.     Defaults  Upon  Senior  Securities. . . . . . . . . . . . . . . .30

Item  4.     Submissions of Matters to a Vote of Security Holders. . . . . . .30

Item  5.     Other  Information. . . . . . . . . . . . . . . . . . . . . . . .31

Item  6.     Exhibits  and  Reports  on  Form  8-K . . . . . . . . . . . . . .31

Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31


                                        1
<PAGE>
<TABLE>
<CAPTION>
                         PART I - FINANCIAL INFORMATION
Item  1.  Financial  Statements

                                        EVOLVE SOFTWARE, INC.
                                CONDENSED CONSOLIDATED BALANCE SHEETS
                                           (in thousands)

                                                                                   2001
                                                                      ------------------------------
                                                                      December 31,      June 30,
                                                                      --------------  --------------
<S>                                                                   <C>             <C>
ASSETS                                                                         (unaudited)
Current assets:
    Cash and cash equivalents. . . . . . . . . . . . . . . . . . . .  $      10,566   $      19,914
    Short-term investments . . . . . . . . . . . . . . . . . . . . .            869           2,840
    Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . .          2,901               -
    Accounts receivable, net of allowance for doubtful
          accounts of $382 and $730, respectively. . . . . . . . . .          1,588           6,414
    Prepaid expenses and other current assets. . . . . . . . . . . .          2,080           2,454
    Notes receivable from related party. . . . . . . . . . . . . . .              -             175
                                                                      --------------  --------------
        Total current assets . . . . . . . . . . . . . . . . . . . .         18,004          31,797

Property and equipment, net. . . . . . . . . . . . . . . . . . . . .          8,248          10,481
Deposits and other assets. . . . . . . . . . . . . . . . . . . . . .            551           1,617
Goodwill and other intangible assets, net. . . . . . . . . . . . . .          2,924           3,726
                                                                      --------------  --------------
        Total assets . . . . . . . . . . . . . . . . . . . . . . . .  $      29,727   $      47,621
                                                                      ==============  ==============

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND PREFERRED
STOCK WARRANTS, AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
    Accounts payable . . . . . . . . . . . . . . . . . . . . . . . .  $       2,773   $       5,670
    Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . .          3,953           5,852
    Deferred revenues. . . . . . . . . . . . . . . . . . . . . . . .          5,176           8,117
    Capital lease obligations, current portion . . . . . . . . . . .            478             646
    Restructuring accrual, current portion . . . . . . . . . . . . .          2,192           2,208
    Short-term debt. . . . . . . . . . . . . . . . . . . . . . . . .          2,376           2,178
                                                                      --------------  --------------
        Total current liabilities. . . . . . . . . . . . . . . . . .         16,948          24,671

Capital lease obligations, less current portion. . . . . . . . . . .             67             194
Restructuring accrual, less current portion. . . . . . . . . . . . .          1,439           4,651
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . .          1,386           2,575
Deferred rent. . . . . . . . . . . . . . . . . . . . . . . . . . . .            211             187
Common stock warrants. . . . . . . . . . . . . . . . . . . . . . . .          3,240               -
                                                                      --------------  --------------
        Total liabilities. . . . . . . . . . . . . . . . . . . . . .         23,291          32,278
                                                                      --------------  --------------

Redeemable convertible preferred stock and preferred stock warrants.          9,809               -

Stockholders' equity (deficit):
    Common stock . . . . . . . . . . . . . . . . . . . . . . . . . .             41              40
    Additional paid-in capital . . . . . . . . . . . . . . . . . . .        248,845         250,485
    Notes receivable from stockholders . . . . . . . . . . . . . . .         (1,963)         (7,795)
    Unearned stock-based compensation. . . . . . . . . . . . . . . .         (6,113)        (11,732)
    Accumulated other comprehensive income (loss). . . . . . . . . .            (40)             95
    Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . .       (244,143)       (215,750)
                                                                      --------------  --------------
        Total stockholders' equity (deficit) . . . . . . . . . . . .         (3,373)         15,343
                                                                      --------------  --------------
Total liabilities, redeemable convertible
preferred stock and preferred stock warrants, and stockholders
equity (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . .  $      29,727   $      47,621
                                                                      ==============  ==============

    The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


                                        2
<PAGE>
<TABLE>
<CAPTION>
                                                EVOLVE SOFTWARE, INC.
                                   CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
                                      (in thousands, except per share amounts)

                                                                                Three  months  ended      Six  months  ended
                                                                                    December  31,             December  31,
                                                                            --------------------------  --------------------------
                                                                                2001          2000          2001          2000
                                                                            ------------  ------------  ------------  ------------
<S>                                                                         <C>           <C>           <C>           <C>
                                                                                    (unaudited)                (unaudited)

Revenues:
    Solutions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $     1,056   $     6,439   $     3,397   $    11,486
    Subscriptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . .        1,141         2,816         2,537         4,728
                                                                            ------------  ------------  ------------  ------------
        Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . .        2,197         9,255         5,934        16,214
                                                                            ------------  ------------  ------------  ------------

Cost of revenues:
    Solutions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          949         3,205         2,364         6,108
    Subscriptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . .          331         1,319           781         2,370
    Stock-based and related compensation charges . . . . . . . . . . . . .           (3)          622          (138)        1,366
                                                                            ------------  ------------  ------------  ------------
        Total cost of revenues . . . . . . . . . . . . . . . . . . . . . .        1,277         5,146         3,007         9,844
                                                                            ------------  ------------  ------------  ------------

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          920         4,109         2,927         6,370

Operating expenses:
    Sales and marketing:
      Other sales and marketing. . . . . . . . . . . . . . . . . . . . . .        3,661        11,009         8,235        22,057
      Stock-based and related compensation charges . . . . . . . . . . . .        1,951         2,282         1,856         4,902
    Research and development:
      Other research and development . . . . . . . . . . . . . . . . . . .        3,016         4,042         6,531         7,872
      Stock-based and related compensation charges . . . . . . . . . . . .        1,617         1,433         1,774         2,956
    General and administrative:
      Other general and administrative . . . . . . . . . . . . . . . . . .        1,830         2,682         4,119         5,203
      Stock-based and related compensation charges . . . . . . . . . . . .        4,214         3,355         5,540         7,418
    Amortization of goodwill and other intangible assets . . . . . . . . .          401         2,659           802         5,385
    Restructuring charges, net . . . . . . . . . . . . . . . . . . . . . .          (89)            -           604             -
                                                                            ------------  ------------  ------------  ------------

        Total operating expenses . . . . . . . . . . . . . . . . . . . . .       16,601        27,462        29,461        55,793

Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      (15,681)      (23,353)      (26,534)      (49,423)

Other income (expense), net. . . . . . . . . . . . . . . . . . . . . . . .       (1,762)          988        (1,492)        1,783
                                                                            ------------  ------------  ------------  ------------

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      (17,443)      (22,365)      (28,026)      (47,640)

Beneficial conversion feature of preferred stock . . . . . . . . . . . . .         (367)            -          (367)       (5,977)

                                                                            ------------  ------------  ------------  ------------
Net loss attributable to common stockholders . . . . . . . . . . . . . . .  $   (17,810)  $   (22,365)  $   (28,393)  $   (53,617)
                                                                            ============  ============  ============  ============

Net loss per common share -- basic and diluted . . . . . . . . . . . . . .  $     (0.47)  $     (0.67)  $     (0.76)  $     (1.99)
                                                                            ============  ============  ============  ============

Shares used in net loss per common share calculation -- basic and diluted.       37,932        33,157        37,370        27,004
                                                                            ============  ============  ============  ============

                 The  accompanying  notes  are  an  integral part of these consolidated financial statements.
</TABLE>


                                        3
<PAGE>
<TABLE>
<CAPTION>
                                               EVOLVE SOFTWARE, INC.
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                  (in thousands)

                                                                                       Six  months  ended  December  31,
                                                                                      ----------------------------------
                                                                                            2001              2000
                                                                                      ----------------  ----------------
<S>                                                                                   <C>               <C>
                                                                                                   (unaudited)
Cash flows from operating activities:
   Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $       (28,026)  $       (47,643)
   Adjustments to reconcile net loss to net cash used in operating activities:
      Loss on disposal of fixed assets . . . . . . . . . . . . . . . . . . . . . . .                -                19
      Allowance for doubtful accounts. . . . . . . . . . . . . . . . . . . . . . . .              765               407
      Depreciation and amortization - fixed assets . . . . . . . . . . . . . . . . .            1,844             1,719
      Amortization of goodwill and other intangible assets . . . . . . . . . . . . .              802             5,382
      Non cash restructuring charges . . . . . . . . . . . . . . . . . . . . . . . .            1,132                 -
      Write-down of stockholders' loans and related interest . . . . . . . . . . . .            6,410                 -
      Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                -               102
      Stock-based charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            2,622            16,642
      Revaluation of common stock warrants . . . . . . . . . . . . . . . . . . . . .            1,722                 -
   Changes in assets and liabilities:
      Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            4,102            (5,217)
      Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . . .              397              (556)
      Deposits and other assets. . . . . . . . . . . . . . . . . . . . . . . . . . .              311              (684)
      Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           (2,903)           (1,288)
      Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           (1,905)            1,110
      Restructuring accrual. . . . . . . . . . . . . . . . . . . . . . . . . . . . .           (3,597)                -
      Deferred revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           (3,008)             (558)
                                                                                      ----------------  ----------------
Net cash used in operating activities. . . . . . . . . . . . . . . . . . . . . . . .          (19,332)          (30,565)
                                                                                      ----------------  ----------------

Cash flows from investing activities:
      Purchase of short-term investments . . . . . . . . . . . . . . . . . . . . . .             (529)          (16,900)
      Maturities of short-term investments . . . . . . . . . . . . . . . . . . . . .            2,500             2,000
      Purchases of property and equipment. . . . . . . . . . . . . . . . . . . . . .             (192)           (5,838)
      Proceeds from sale of property and equipment . . . . . . . . . . . . . . . . .                -                13
      Purchases of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . .                -              (700)
      Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           (2,901)                -
                                                                                      ----------------  ----------------
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . . . . .           (1,122)          (21,425)
                                                                                      ----------------  ----------------

Cash flows from financing activities:
      Payments under capital lease obligations . . . . . . . . . . . . . . . . . . .             (295)             (362)
      Repayment of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . .             (990)           (3,327)
      Proceeds from initial public offering. . . . . . . . . . . . . . . . . . . . .                -            46,473
      Proceeds from issuance of preferred stock and warrants, net of issuance costs.           12,426            12,577
      Proceeds from exercise of common stock options . . . . . . . . . . . . . . . .                -               849
      Proceeds from exercise of common stock warrants. . . . . . . . . . . . . . . .                -               500
      Proceeds from payment on note receivable . . . . . . . . . . . . . . . . . . .                -               158
      Proceeds from employee stock purchase plan . . . . . . . . . . . . . . . . . .               80                 -
      Payments on repurchase of common stock . . . . . . . . . . . . . . . . . . . .              (13)              (77)
                                                                                      ----------------  ----------------
Net cash provided by financing activities. . . . . . . . . . . . . . . . . . . . . .           11,208            56,791
                                                                                      ----------------  ----------------

Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . .             (102)              (38)

Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . .           (9,348)            4,763
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . .           19,914            18,660
                                                                                      ----------------  ----------------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . .  $        10,566   $        23,423
                                                                                      ================  ================

             The  accompanying  notes  are  an integral part of these consolidated financial statements.
</TABLE>


                                        4
<PAGE>
                              EVOLVE SOFTWARE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE  1.  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES

THE  COMPANY

Evolve  Software,  Inc.  (the  "Company" or "Evolve") was incorporated under the
laws  of  the  state  of Delaware in February 1995 for the purpose of designing,
developing,  marketing  and supporting enterprise application software products.
The  accompanying  condensed  consolidated  financial  statements  include  the
accounts  of  Evolve Software, Inc. and the Company's wholly-owned subsidiaries,
Evolve  Software  Europe  Ltd.,  Evolve  Software  (India)  Pvt. Ltd. and Evolve
Canada, Inc., which were incorporated in May 2000, December 2000 and April 2001,
respectively.

LIQUIDITY

The  Company  has  sustained  net losses and negative cash flows from operations
since  its  inception.  The Company needs to increase its revenues and to manage
its  net  operating expenses and to raise additional financing through public or
private financing or other sources of financing in order to continue to meet its
obligations  and  to  fund  its  operations  in the ordinary course of business.
There  is  no  assurance  that the Company will achieve a sufficient increase in
revenues  or  sufficiently  manage its net operating expenses or that it will be
able  to  raise  adequate  financing  from  other  sources.

BASIS  OF  PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information  and in accordance with the instructions to Form 10-Q and
Article  10  of  Regulation  S-X.  Accordingly,  they  do not include all of the
information  and  footnotes required by generally accepted accounting principals
for  complete financial statements.  All adjustments (including adjustments of a
normal  recurring nature) considered necessary for a fair presentation have been
included.  Operating results for the three- and six-month periods ended December
31, 2001, are not necessarily indicative of the results that may be expected for
the  year ending June 30, 2002.  For further information, refer to the financial
statements  and  notes  thereto  included in the Company's Annual Report on Form
10K/A.

PRINCIPLES  OF  CONSOLIDATION

The  condensed  consolidated financial statements include the accounts of Evolve
and  its  wholly-owned  subsidiaries.  All significant intercompany balances and
transactions  have  been  eliminated.

USE  OF  ESTIMATES

The Company has prepared these financial statements in conformity with generally
accepted  accounting  principles  which  require  it  to  make  estimates  and
assumptions  that  affect  the  reported  amounts  of assets and liabilities and
disclosure  of  contingent  assets  and liabilities at the date of the financial
statements  and  reported  amounts of revenues and expenses during the reporting
period.  Actual  results  could  differ  from  those  estimates and could affect
operating  results.

REVENUE  RECOGNITION

The  Company derives revenues from fees for licenses and implementation services
("Solutions  revenue")  and  fees from maintenance, application service provider
("ASP")  and  subscription  agreements  ("Subscriptions  revenue").  The Company
recognizes  revenues  in accordance with the provisions of American Institute of
Certified Public Accountants (AICPA) Statement of Position (SOP) 97-2, "Software
Revenue Recognition."  The Company also follows the provisions of the Securities
Exchange  Commission's  Staff  Accounting  Bulletin  No. 101 (SAB 101), "Revenue
Recognition  in  Financial  Statements."

Under  SOP  97-2  as  amended,  the  Company recognizes revenues when all of the
following  conditions  are  met:


                                        5
<PAGE>
     -    when persuasive evidence of a customer agreement exists;
     -    the delivery of the product or service subject to the agreement has
          occurred;
     -    the associated fees are fixed or determinable; and
     -    the Company believes that collection of these fees is reasonably
          assured.

The Company's customer agreements typically include arrangements for maintenance
services  to  be  provided  by  the  Company.  Generally, the Company has vendor
specific  objective  evidence  of  fair  value  for  the  maintenance element of
software arrangements based on the renewal rates for maintenance in future years
as  specified  in  the  contracts.  In  those cases where first year maintenance
revenue is included in the license fee, the Company defers the fair value of the
first  year  maintenance revenue at the outset of the arrangement and recognizes
it ratably over the period during which the maintenance is to be provided, which
normally  commences  on  the  date  the  software  is  delivered.

The Company has established vendor specific objective evidence of fair value for
certain services.  For these contracts, which involve significant implementation
or  other  services which are essential to the functionality of the software and
which  are  reasonably estimable, the license and services revenue is recognized
over  the  period  of  each  implementation,  primarily  using  the
percentage-of-completion  method.  Labor  hours incurred are used as the measure
of progress towards completion.  Revenue for these arrangements is classified as
Solutions  revenue.  A  provision for estimated losses on engagements is made in
the  period  in which the loss becomes probable and can be reasonably estimated.
In  cases  where  a  sale  of a license does not include implementation services
(e.g.,  a  sale  of additional seats or a sale of product to be implemented by a
third party), revenue is recorded upon delivery with an appropriate deferral for
maintenance  services,  if  applicable,  provided  all  of  the  other  relevant
conditions  have  been  met.

The  Company generates revenue from its ASP business by hosting the software and
making  the  solution  available  to  the  customer via the Internet, as well as
providing  maintenance  and other services to the customer.  In such situations,
customers pay a monthly fee for the term of the contract in return for access to
the  Company's  software, maintenance and other services such as implementation,
training,  consulting  and  hosting.  For  certain ASP software arrangements for
which the Company does not have vendor specific objective evidence of fair value
for  the elements of the contract, fees from such arrangements are recognized on
a  monthly  basis  as  the  hosting service is provided.  In other circumstances
where  the  customer  has  the  right  to  take delivery of the software and the
Company  has  vendor  specific  objective evidence of fair value for the hosting
element  of  the  contract,  fees from the arrangement are allocated between the
elements  based  on  the  vendor specific objective evidence.  Revenue for these
hosting  arrangements  is  classified  as  Subscriptions  revenue.

License  revenue  includes  product licenses to companies from which the Company
has  purchased products and services under separate arrangements executed within
a  short  period  of  time  ("reciprocal  arrangements").  Products and services
purchased in reciprocal arrangements include:  1) software licensed for internal
use,  2)  software  licensed  for  resale  or  incorporation  into the Company's
products;  and  3)  development  or  implementation  services.  For  reciprocal
arrangements,  the  Company considers Accounting Principles Boards (APB No. 29),
"Accounting for Nonmonetary Transactions," and Emerging Issues Task Force (EITF,
Issue  No.  86-29),  "Nonmonetary Transactions: Magnitude of Boot and Exceptions
to  the Use of Fair Value, Interpretation of Accounting Principles Board No. 29,
Accounting for Nonmonetary Transactions" to determine whether the arrangement is
a  monetary  or  nonmonetary transaction.  In determining these fair values, the
Company  considers  the  recent  history  of  cash sales of the same products or
services  in  similar  sized transactions.  Revenues recognized under reciprocal
arrangements  were  $232,000 and $822,000 for the fiscal quarters ended December
31, 2001 and 2000, respectively and $604,000 and $1.1 million for the six months
ended  December  31,  2001  and  2000,  respectively.

Deferred  revenue represents fees derived from maintenance, ASP and subscription
agreements  that  are being recognized ratably over the unexpired portion of the
underlying  period  of the agreements.  Deferred revenue also represents amounts
billed  to customers under license and service arrangements in excess of amounts
recognized  as  revenue  to  date  from  those arrangements.  As work progresses
towards completion of these arrangements, a portion of the deferred revenue will
be  recognized.  Certain  revenues  will  also  be  deferred,  if  other revenue
recognition  criteria  have  not  been  met.

COMPREHENSIVE  INCOME  (LOSS)

The  Company  follows  Statement  of Financial Accounting Standards ("SFAS") No.
130,  "Reporting  Comprehensive  Income." SFAS No. 130 establishes standards for
reporting  and  display  of  comprehensive  income  (loss) and its components in
financial  statements.  The  statement  of  comprehensive loss is as follows (in
thousands):


                                        6
<PAGE>
<TABLE>
<CAPTION>
                                         THREE MONTHS ENDED      SIX MONTHS ENDED
                                             DECEMBER 31,          DECEMBER 31,
                                         --------------------  --------------------
                                           2001       2000       2001       2000
                                         ---------  ---------  ---------  ---------
<S>                                      <C>        <C>        <C>        <C>
Net loss                                 $(17,443)  $(22,365)  $(28,026)  $(47,640)
Foreign currency translation adjustment        49        (39)      (135)       (42)
                                         ---------  ---------  ---------  ---------
Comprehensive loss                       $(17,394)  $(22,404)  $(28,161)  $(47,682)
                                         =========  =========  =========  =========
</TABLE>

SEGMENT  INFORMATION

The Company operates in only one segment, namely workforce optimization software
and,  as  such,  uses  only  one measure of profitability for internal reporting
purposes.  To  date,  substantially  all  of  the  Company's  revenues have been
derived  from  within  the  United  States.  Substantially  all of the Company's
long-lived  assets  are  located  in  the  United  States.

RECENT  ACCOUNTING  PRONOUNCEMENTS

In  July 2001, the Securities and Exchange Commission ("SEC") issued Staff Topic
No.  D-98, which provides clarification on the classification and measurement of
redeemable  equity  securities.  This  announcement provides clarification about
the balance sheet classification and measurement of securities subject to either
mandatory  redemption features or whose redemption is outside the control of the
issuer.  The Company has determined that its Series A Preferred Stock, which was
issued  in October 2001, should be classified outside of permanent equity, based
on  the  guidance  in  Topic  No.  D-98.

In  July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141,  "Business  Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets."  SFAS  No.  141 requires business combinations initiated after June 30,
2001,  to be accounted for using the purchase method of accounting, and broadens
the criteria for recording intangible assets separately from goodwill.  Recorded
goodwill  and  intangibles  will be evaluated against these new criteria and may
result  in  certain  intangibles being subsumed into goodwill, or alternatively,
amounts  initially  recorded  as  goodwill  may  be  separately  identified  and
recognized  apart  from  goodwill.  SFAS  No.  142  requires  the  use  of  a
non-amortization  approach  to  account  for  purchased  goodwill  and  certain
intangibles.  Under  a  non-amortization  approach,  goodwill  and  certain
intangibles  will not be amortized into results of operations, but instead would
be reviewed for impairment and written-down and charged to results of operations
only  in  the  periods  in  which  the  recorded  value  of goodwill and certain
intangibles  is  more  than  its  fair  value.  Evolve will continue to amortize
goodwill  and purchased intangible assets acquired prior to June 30, 2001, until
it  adopts  SFAS  No.  142.  For  business combinations initiated after June 30,
2001, Evolve will follow the non-amortization method under SFAS No. 142.  Evolve
is  required to adopt the provisions of SFAS No. 142 on July 1, 2002.  Evolve is
currently  assessing  SFAS No. 142 and has not determined the impact on Evolve's
condensed  consolidated  financial  statements.

In  August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal  of  Long-Lived  Assets."   SFAS No. 144 addresses financial accounting
and reporting for the impairment or disposal of long-lived assets to be held and
used,  to  be  disposed  of  other  than  by sale and to be disposed of by sale.
Although  SFAS  No.  144  retains  certain  of the requirements of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be  Disposed  of," it supersedes SFAS No. 121 and APB Opinion No. 30, "Reporting
the  Results  of Operations--Reporting the Effects of Disposal of a Segment of a
Business,  and  Extraordinary,  Unusual  and  Infrequently  Occurring Events and
Transactions  for  the  Disposal of a Segment of a Business."  SFAS No. 144 also
amends Accounting Research Bulletin No. 51, "Consolidated Financial Statements,"
to  eliminate  the exception to consolidation for a subsidiary for which control
is  likely to be temporary.  The statement is effective for financial statements
issued  for  fiscal years beginning after December 15, 2001, and interim periods
within  those  fiscal  years,  with  early  adoption encouraged.  The Company is
currently  assessing  the  impact  of  adopting  SFAS  No.  144 on the Company's
financial  position  and  results  of  operations.

NOTE  2.  ACQUISITIONS

On  June  29,  2001,  Evolve  acquired  certain  assets  of  Vivant! Corporation
("Vivant").  The  total  acquisition  cost  was  approximately  $3.1  million,
primarily  comprised  of  $910,000  in  cash,  1,553,254 shares of the Company's
common  stock  valued  at  $1.6  million,  a future stock commitment valued at a
minimum  of  $525,000  and  $137,000 for transaction related expenses.  With the
assistance  of an independent valuation, the Company recorded approximately $2.2
million  in  developed technology, $717,000 in goodwill and $187,000 in acquired
workforce  upon  this  acquisition  which  was accounted for as a purchase.  The


                                        7
<PAGE>
Company  subsequently  issued  663,495  shares  to  Vivant in September 2001 and
3,899,756  in January 2002 pursuant to the terms of the acquisition.  The number
of  shares  issued  to  Vivant  at  the closing of the acquisition is subject to
adjustment  by  issuance  of  additional shares or redemption of existing shares
based  on  the  market  value  of  Evolve's  common  stock  as  of  the time the
registration  of  such shares becomes effective.  In addition, Evolve has agreed
to issue to Vivant additional shares of its common stock with a value of no less
than  $525,000  and no more than $4,425,000 at specified times based on receipts
from  the  sale  of Vivant's products for the shorter of twenty-four months from
the  date  of the agreement or eighteen months from the Company's first customer
contract that incorporates Vivant technology.  The Company is still refining its
purchase  price  allocation,  which may result in adjustments in future periods.
However,  the  asset  acquisition agreement governing the purchase of the Vivant
assets limits the aggregate number of shares of common stock to be issued by the
Company  to  not  exceed 7,661,097 shares or 1,544,592 shares in excess of those
issued  through  January  31, 2002. The results of Vivant's operations have been
included  in the Company's condensed consolidated financial statements since the
date  of  acquisition.

The  following  unaudited  pro forma consolidated financial information presents
the  combined results of Evolve and Vivant as if the acquisition had occurred on
July  1,  2000,  after  giving  effect  to  certain adjustments, principally the
amortization  of  goodwill and other intangible assets.  The unaudited pro forma
consolidated  financial  information does not necessarily reflect the results of
operations  that  would have occurred had the acquisition been completed on July
1,  2000  (in  thousands,  except  per  share  amounts).

<TABLE>
<CAPTION>
                                                     SIX MONTHS
                                                        ENDED
                                                  DECEMBER 31, 2000
                                                 -------------------
<S>                                              <C>
Pro forma total revenue                          $           16,214
                                                 ===================

Pro forma net loss                               $          (55,423)
                                                 ===================

 Basic and diluted pro forma net loss per share  $            (1.90)
                                                 ===================

 Shares used to compute basic and
  diluted pro forma net loss per share                       29,221
                                                 ===================
</TABLE>

NOTE  3.  STOCK-BASED  AND  RELATED  COMPENSATION  CHARGES

The  Company  incurred stock-based compensation charges in connection with stock
option  grants  and  sales of restricted stock to employees at exercise or sales
prices  below  the  deemed  fair market value of its common stock for accounting
purposes.  The  cumulative  difference  between  the  deemed  fair  value of the
underlying  stock at the date the options were granted and the exercise price of
the  granted  options  was  $40.3  million as of August 9, 2000, the date of the
Company's  Initial  Public  Offering.  This amount is being amortized, using the
accelerated  method  of  FASB  Interpretation  No.  28,  "Accounting  for  Stock
Appreciation  Rights  and  Other  Variable  or  Award Plans," over the four-year
vesting  period  of  the  granted  options.  Based  on  the unearned stock-based
compensation balance at December 31, 2001, the Company's results from operations
will  include stock-based compensation expense, at a minimum, through 2004.  The
Company  recorded  stock-based  charges of $1.4 million and $2.6 million for the
three and six months ended December 31, 2001, respectively, and $7.7 million and
$16.6  million  for  the  three  and  six  months  ended  December  31,  2000,
respectively.

In  connection  with the termination of employment of certain executive officers
in  fiscal  2001,  the  Company  entered  into arrangements with those executive
officers  to  provide  consulting  services.  For  accounting purposes, this was
deemed  to  be  a  change  in  status  of  the  employee  and  resulted in a new
measurement  date  for  the amended equity awards in accordance with FIN No. 44,
"Accounting  for  Certain  Transactions  Involving  Stock  Compensation."  In
addition, for other executive officers of Evolve whose employment was terminated
in  fiscal 2001 and who had purchased restricted stock with full recourse notes,
the  Company  agreed  as  part of their termination settlements to allow them to
sell back to the Company their restricted shares in exchange for cancellation of
the notes. Accordingly, these notes are accounted for as non-recourse notes on a
variable  basis  such  that  the  charge/credit  arising  from  these notes will
fluctuate  from  period  to  period  based  on  the  Company's stock price.  The
revaluation  charge  for  the notes subject to remeasurement was not significant
for  the  quarter  ended  December  31,  2001.  The  financial  impact  of these


                                        8
<PAGE>
arrangements is included within stock-based compensation expense, which has been
allocated  to  the  appropriate  functional  categories  within the Statement of
Operations.

In  October  2001,  the  Board of Directors voted to modify existing stockholder
loans, which were issued to allow board members, officers and selected employees
to  exercise  stock options and purchase restricted stock, from full-recourse to
non-recourse  and  to  extend their due dates, in the event of termination, from
thirty  days  to  fifteen  months  after the date of termination.  The loans are
secured  only  by  the underlying stock, which they were used to purchase.  As a
result,  the  loans  became  subject  to variable accounting and the outstanding
stockholder  loans  and  related  interest were revalued to their net realizable
value  of  $.37  per  share  at December 31, 2001, resulting in a charge of $6.4
million.  Until  they  are due or repaid, if earlier, the loans will be revalued
each  quarter  to their net realizable value as determined by the stock price at
that  time.

NOTE  4.  LONG-TERM  DEBT

On  November  13,  2001,  the Company revised an existing credit arrangement and
signed  an  amended Loan and Security Agreement to restructure its excess credit
facilities,  to  obtain  a  waiver of certain defaults under the previous credit
arrangement  and  to  reduce  the line-of-credit to $3 million and the term loan
credit  facility to $4.4 million with interest accruing at the bank's prime rate
plus  0.75%  and  1.00%,  respectively.  At  December 31, 2001, these rates were
5.50%  and  5.75%,  respectively.  As  of  December  31,  2001,  the Company had
utilized  $4.8 million of the term loan credit facility and had repaid $990,000.
The  loan will be fully repaid by July 1, 2003.  Both the line-of-credit and the
term  loan  credit  facility  are collateralized by all of the Company's assets,
including  intellectual  property,  except  for previously leased equipment.  In
connection with the loan amendment the bank approved new financial covenants for
the periods commencing October 1, 2001.  Under the new covenants, the Company is
required  to:  (1)  maintain at all times a minimum bank liquidity ratio of 1.50
to  1.00,  reducing  to  a  ratio of 1.25 to 1.00 on January 31, 2002, (the cash
component  of this ratio is required to be held at the bank); (2) beginning with
the  month  ending December 31, 2001, maintain on a monthly basis the greater of
(a)  a  minimum  company  liquidity  ratio of 1.75 to 1.00 or (b) $14,000,000 in
unrestricted  cash  (unrestricted  cash will include any restricted cash held by
the  bank)  reducing  to  $8,000,000 on January 31, 2002; (3) beginning with the
month  ending  December 31, 2001, not exceed a leverage maximum of 2.25 to 1.00;
and  (4)  meet  a  milestone  covenant  of obtaining at least $10,000,000 in new
equity  from  investors acceptable to the bank by October 15, 2001.  At December
31,  2001,  the  Company  was  in  compliance  with all covenants.  Based on the
Company's  current  operating  plan,  the  Company will need to raise additional
equity  financing  by  March  31, 2002 to maintain compliance with the foregoing
covenants  and  avoid  an  acceleration  of  the  outstanding  balance.

NOTE  5.  CONTINGENCIES

From  time  to  time,  the Company may become involved in litigation relating to
claims  arising  from the ordinary course of business.  The Company is defending
against  two claims filed by early customers, one an action filed in the federal
district  court  in  Massachusetts  and the other an action filed in the federal
district  court  in California.  Both cases allege a variety of claims including
that  the  software  and  services  purchased  from  the Company did not satisfy
certain  contractual  obligations and that the Company engaged in practices that
they  allege were unfair or misrepresentative.  The Company has filed motions to
dismiss  both  of  these  claims.  Both  of  these claims are still in the early
stages  of  litigation; therefore, it is not possible to estimate the outcome of
these  contingencies.

In  November  2001,  a  complaint  seeking  class action status was filed in the
United  States  District  Court  for  the  Southern  District  of New York.  The
complaint  is  purportedly  brought  on  behalf of all persons who purchased the
Company's  common  stock  from  August  9,  2000, through December 6, 2000.  The
complaint names as defendants some of the Company's former and current officers,
and several investment banking firms that served as managing underwriters of the
Company's  initial  public  offering.  Among other things, the complaint alleges
liability  under  the  Securities Act of 1933 and the Securities Exchange Act of
1934,  on  the grounds that the registration statement for the Company's initial
public  offering  did  not  disclose  that:  (1)  the underwriters had allegedly
agreed to allow certain of their customers to purchase shares in the offering in
exchange  for  alleged  excess commissions paid to the underwriters; and (2) the
underwriters  had  allegedly arranged for certain of their customers to purchase
additional  shares  in  the  aftermarket  at pre-determined prices under alleged
arrangements  to  manipulate the price of the stock in aftermarket trading.  The
Company  is  aware  that  similar  allegations  have been made in numerous other
lawsuits  challenging initial public offerings conducted in 1998, 1999 and 2000.
No  specific amount of damages is claimed in the complaint involving the initial
public  offering.  The  Company  intends  to contest the claims vigorously.  The
Company  is  unable,  at  this  time,  to  determine  whether the outcome of the
litigation will have a material impact on its results of operations or financial
condition  in  any  future  period.


                                        9
<PAGE>
The  Company  believes  that  there  are  no  other claims or actions pending or
threatened  against  it, the ultimate disposition of which would have a material
adverse  effect  on  the  Company.

NOTE  6.  RESTRUCTURING  CHARGES

During  the quarter ended December 31, 2001, the Company recorded an $89,000 net
reversal  of  restructuring  charges.  In association with the new board members
from the October investment, the Company critically reviewed operations and cost
structure,  during  the  quarter,  and  decided  that  a  worldwide headcount of
approximately  135  was  the  appropriate  strategic size for the Company.  This
decision  resulted  in the involuntary termination of 61 employees or 30% of the
Company's  workforce.  These  terminations  were  from  all  functions  of  the
Company's  operations  and included twenty-two employees from the closure of the
India  research  facility.  As  a result of the headcount reduction, the Company
recorded  charges  of $1.2 million in severance and benefits costs, $523,000 for
the  disposal  of  excess computer and other equipment primarily relating to the
India operation, and a charge of $316,000 for costs relating to the winding-down
of  the  India  operation.  These  costs were partially offset by a $2.2 million
reversal of previously accrued restructuring charges for the excess space at the
Company's Emeryville headquarters that resulted from amending the original lease
to  relieve the Company from some future rental obligations.  These charges were
in  addition to the $693,000 and $9.7 million in restructuring charges that were
recorded  in  the  quarters  ended  September  30,  2001  and  June  30,  2001,
respectively.

A  rollforward  of  the  restructuring-related  liabilities  follows:

<TABLE>
<CAPTION>
(in thousands)                                SEVERANCE                     FIXED
                                             AND RELATED                    ASSET
                                               CHARGES      FACILITIES    WRITE-OFF    TOTALS
                                            -------------  ------------  -----------  --------
<S>                                         <C>            <C>           <C>          <C>
Restructuring charges                       $      1,597   $     6,433   $    1,694   $ 9,724
Amount paid                                         (817)         (354)           -    (1,171)
Non-cash charges                                       -             -       (1,694)   (1,694)
                                            -------------  ------------  -----------  --------
Accrued liabilities at June 30, 2001        $        780   $     6,079            -   $ 6,859

Restructuring charges                                590             -          103       693
Amount paid                                       (1,007)         (405)           -    (1,412)
Non-cash charges                                       -             -         (103)     (103)
                                            -------------  ------------  -----------  --------
Accrued liabilities at September 30, 2001   $        363   $     5,674   $        -   $ 6,037

Restructuring charges                              1,224        (1,836)         523       (89)
Amount paid                                       (1,013)         (529)      (1,542)
Non-cash charges                                    (191)         (121)        (463)     (775)
                                            -------------  ------------  -----------  --------
Accrued liabilities at December 31, 2001    $        383   $     3,188   $       60   $ 3,631

Short-term                                  $        383   $     1,749   $       60   $ 2,192
Long-term                                   $          -   $     1,439   $        -   $ 1,439
</TABLE>

NOTE  7.  NET  LOSS  PER  SHARE

Basic  and  diluted  net  loss per share are computed using the weighted average
number  of  common shares outstanding during each period.  Since the Company has
had  a net loss for all periods presented, net loss per share on a diluted basis
is equivalent to basic net loss per share.  Common shares issuable upon exercise
of stock options and warrants and upon conversion of convertible preferred stock
are excluded because the effect would be anti-dilutive.  A reconciliation of the
numerator  and  denominator (both in thousands) used in the calculation of basic
and  diluted  net  loss  per  share  follows:


                                       10
<PAGE>
<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED                 SIX MONTHS ENDED
                                                        DECEMBER 31,                     DECEMBER 31,
                                                ------------------------------  ------------------------------
                                                     2001            2000            2001            2000
                                                --------------  --------------  --------------  --------------
<S>                                             <C>             <C>             <C>             <C>
Numerator:
  Net loss                                      $     (17,443)  $     (22,365)  $     (28,026)  $     (47,640)
  Beneficial conversion feature of redeemable
     convertible preferred stock                         (367)              -            (367)         (5,977)

                                                --------------  --------------  --------------  --------------
  Net loss attributable to common stockholders  $     (17,810)  $     (22,365)  $     (28,393)  $     (53,617)
                                                ==============  ==============  ==============  ==============

Denominator:
  Weighted average common shares                       40,830          38,456          40,493          32,534
  Weighted average unvested common shares
    subject to repurchase                              (2,898)         (5,299)         (3,123)         (5,530)

  Shares used in computing basic and diluted    --------------  --------------  --------------  --------------
    net loss per share                                 37,932          33,157          37,370          27,004
                                                ==============  ==============  ==============  ==============
</TABLE>

At  December  31,  2001  and  2000,  options to purchase 9,628,425 and 3,567,114
shares  of  common stock were outstanding with a weighted-average exercise price
of  $1.61 and $6.48, respectively.  At December 31, 2001, the outstanding Series
A  Preferred  Stock was convertible into 26 million shares of common stock.  The
warrants  to  purchase  1.3 million shares of Series A Preferred Stock at $10.00
per  share  and  6.5  million  shares  of  common  stock  at $1.00 per share, if
exercised,  were  convertible  into  26 million and 6.5 million shares of common
stock,  respectively,  as  of December 31, 2001.  The Company had also granted a
right to receive a second common stock warrant to purchase 6.5 million shares of
common stock at $1.00 per share, which was contingently issuable at December 31,
2001.  These common stock equivalents have been excluded from the computation of
diluted  net  loss per share because their effect would have been anti-dilutive.
The weighted-average purchase price of stock subject to repurchase was $2.41 and
$2.25  as  of  December  31,  2001  and  2000,  respectively.

NOTE  8.  SERIES  A  PREFERRED  STOCK  FINANCING

The  Company completed the sale of Series A Convertible Preferred Stock pursuant
to  the  Purchase  Agreement  (the  "Series A Preferred Financing") with Warburg
Pincus  Private Equity VIII L.P. and certain previous stockholders on October 9,
2001.  The  Company  issued the following securities and rights to the investors
participating  in  the  Series  A  Preferred  Financing:

     -    an  aggregate  of  1.3  million  shares of Evolve's Series A Preferred
          Stock  at  a  price  of  $10  per  share;
     -    warrants  to  purchase  up  to  an aggregate of 1.3 million additional
          shares  of  Series  A Preferred Stock at a price of $10 per share (the
          "preferred  stock  warrants");
     -    warrants  to  purchase  up  to 6.5 million shares of common stock at a
          price  of  $1.00  per  share  (the  "common  stock  warrants");  and
     -    the  right  to  receive additional common stock warrants to purchase a
          number  of shares of common stock equal to 25% of the number of shares
          of  common  stock  into  which  the shares of Series A Preferred Stock
          issued  upon exercise of the preferred stock warrants are convertible,
          at  the  time  such  preferred  stock  warrants  are  exercised.

The  Company  received  an  aggregate purchase price of $13 million, with net of
proceeds  of  $12.4  million,  for  the 1.3 million shares of Series A Preferred
Stock  sold.  If  the preferred stock warrants and the common stock warrants are
exercised  in  full for cash, the Company will receive an additional $26 million
in  aggregate  proceeds.  The Company has no plans to issue additional shares of
Series  A  Preferred  Stock,  other than upon exercise of the warrants described
above.  However, the Company has 200,000 additional shares of Series A Preferred
Stock  authorized  for  issuance in addition to those already issued or reserved
for  issuance  pursuant  to  exercise  of  the  warrants.

The  issuance  of  the Series A Preferred Stock and the warrants was exempt from
the  registration requirements of the Securities Act pursuant to Section 4(2) of
the  Securities Act, and regulations promulgated thereunder.  The Company relied
on  the  fact  that  the  securities  were offered to a small group of investors


                                       11
<PAGE>
without  any  public advertisement or solicitation, and on the fact that each of
the  investors  represented  that  it  was  an  "accredited investor" within the
meaning  of  Rule  501  under  the Securities Act and that it was purchasing the
securities  for  investment  purposes and not with any present intent to further
distribute  such  securities.

Conversion  Rights.  Each  share of Series A Preferred Stock is convertible into
common  stock  at  an  initial  conversion  price  of  $0.50,  or  at an initial
conversion  rate  of  20  shares  of  common  stock  for  each share of Series A
Preferred  Stock.  The  conversion  rate  accretes at a rate of 8.00% per annum.
The  conversion  rate is also subject to certain adjustments as set forth in our
Certificate of Designation of Series A Preferred Stock, in the event of dilutive
stock  issuances  and in the event the Company incurs litigation- or tax-related
expenses  in excess of certain limitations.  The Series A Preferred Stock may be
converted at any time at the election of each holder.  The Company may cause all
of  the  shares  of  Series A Preferred Stock to be automatically converted into
common  stock  at  any  time  after the fifth anniversary of the date of initial
issuance  of  these shares, provided that the common stock has been trading at a
value  of  at  least  $5.00  for  a  specified  period.

Liquidation  Preference.  In  the event of a transaction involving a dissolution
of  the  Company,  the  holders  of Series A Preferred Stock will be entitled to
payment of a liquidation preference equal to the initial purchase price of their
shares  of  Series A Preferred Stock, plus an 8.00% annual rate of return, prior
to  any  payment to holders of common stock and other junior securities.  In the
event  of  certain  transactions involving a change of control of our company, a
liquidation  preference  equal  to  the  initial  purchase price of the Series A
Preferred  Stock  shares  held  plus  an  8.00%  rate  of return computed over a
five-year  period  is  payable  to  the  holders  of  Series  A Preferred Stock,
irrespective  of  when  such  a  transaction  occurs.

Voting  Rights.  Holders  of  Series A Preferred Stock are generally entitled to
one  vote  for  each  share  of common stock into which their Series A Preferred
Stock is convertible.  In addition, the Company may not, without the affirmative
vote  of  the  holders  of  a  majority  of  the  outstanding shares of Series A
Preferred  Stock:

     -    amend  or  repeal  the provisions of the Certificate of Designation of
          Series  A  Preferred  Stock;
     -    enter  into  a  transaction involving a change of control, unless such
          transaction would result in aggregate consideration paid in respect of
          all  Series  A  Preferred  Stock  equal to the original purchase price
          these  shares,  plus  an  internal  rate  of  return  of at least 50%;
     -    authorize  or  issue  any  securities senior to the Series A Preferred
          Stock;
     -    issue  any  debt  obligations  other  than  trade debt in the ordinary
          course  of  business;
     -    pay  any  dividends on or repurchase any junior securities, subject to
          certain  exceptions;
     -    amend our bylaws to increase the authorized number of our directors to
          more  than  eight;  or
     -    authorize  or  issue  any  shares  of  any class or series of stock on
          parity  with the Series A Preferred Stock under certain circumstances.

Board  Representation.  The holders of the Series A Preferred Stock, voting as a
separate  class,  are entitled to elect three members to our Board of Directors.
All  other  directors will be elected by the holders of the common stock and the
Series  A  Preferred  Stock  voting  as a single class.  The number of directors
appointed  by  the  holders  of  Series A Preferred Stock is reduced as follows:

     -    to  two  if  less  than 75% but at least 50% of the shares of Series A
          Preferred  Stock  remain  outstanding, or if Warburg does not exercise
          preferred stock warrants to purchase at least 500,000 shares of Series
          A  Preferred  Stock  prior  to  expiration  of  such  warrants;
     -    to  one  if  less  than 50% but at least 25% of the shares of Series A
          Preferred  Stock  remain  outstanding;  or
     -    to  zero,  if  less than 25% of the shares of Series A Preferred Stock
          remain  outstanding.

Preferred  Stock  Warrants.  The  preferred  stock  warrants  are exercisable to
purchase up to an aggregate of 1.3 million shares of Series A Preferred stock at
a  common stock-equivalent price of $.50 per share, payable in cash.  50% of the
preferred  stock  warrants  expire if not exercised within thirty days after our
appointment of a new permanent Chief Executive Officer.  If these first warrants
are  exercised  in full, then the balance of the preferred stock warrants may be
exercised  for  up  to  one  year  after  issuance.

Common  Stock  Warrants.  The  common stock warrants issued to the investors are
exercisable  for  up to 6.5 million shares of common stock, and the Company will
issue  warrants  to  purchase  up  to an additional 6.5 million shares of common
stock  if  the preferred stock warrants are exercised in full.  The common stock
warrants  have  an  exercise  price  of  $1.00  per  share,  which is subject to
adjustment  if  we  issue  securities  at  less than fair market value and under
certain  other  circumstances.  The  common  stock warrants may be exercised for


                                       12
<PAGE>
cash,  or  on  a  cashless  basis by converting the common stock warrants into a
number  of  shares  with a value equal to the spread between the market value of
the  shares  subject  to  the  common stock warrants and the exercise price.  In
addition,  in the event of certain transactions involving a change of control of
Evolve,  holders  of  common stock warrants will have the right to deliver these
warrants  to  us  in  exchange  for  payments  equal to the market value of such
warrants  at  the time of the change of control transaction, payable in cash or,
subject  to  certain  conditions,  shares of common stock of Evolve.  The common
stock  warrants  have  a  term  of  seven  years.

In  accordance  with  EITF  Issue  No.  00-19, the Company determined that these
outstanding warrants to purchase 6.5 million shares of its common stock at $1.00
per  share,  as  well  as  the  contingently  issuable  warrants  to purchase an
incremental  6.5 million shares of its common stock at $1.00 per share should be
accounted  for as a liability, as a result of certain rights of the common stock
warrant  holders  to  receive  cash instead of stock in the event of a change of
control.  Accordingly,  the outstanding warrants were recorded at fair value, as
determined  by  the  Black-Scholes pricing model, at each exercise and reporting
period  date  with  any  changes  in  the  fair value included in the results of
operations.  On  October 9, 2001, the Company calculated the fair value of these
warrants,  using  the  Black-Scholes option pricing model, at approximately $1.5
million  and  recorded  a  corresponding  liability.  On  December 31, 2001, the
warrants were revalued using the Black-Scholes pricing methodology.  The Company
recognized  an  additional  expense of approximately $1.7 million related to the
increase  in the valuation of the warrants, which is included in other income in
the  Company's  consolidated  statement  of  operations  for the three- and six-
months  ended December 31, 2001.  The assumptions used to value the common stock
warrants  were  a  risk-free rate of 4.7%, a dividend yield of 0%, volatility of
89%  and  a  term  of  seven  years.

Beneficial  Conversion  Feature
At  issuance on October 9, 2001, the Company allocated the net proceeds from the
issuance  of the Series A Preferred Stock on a pro-rata basis as required by APB
14,  between  the  preferred  stock  and  the  preferred  stock  warrants, after
deduction  of  the  fair  value  of the common stock and contingent common stock
warrants.  The fair value of the preferred stock warrant was determined based on
the  Black-Scholes  option  pricing  model  and  the  following  assumptions:
contractual  term  of  one  year,  a risk free interest rate of 4.7%, a dividend
yield of 0% and volatility of 160%.  As a result, the preferred stock was deemed
to  have  an embedded beneficial conversion of approximately $1.5 million, which
was recorded as an increase in additional paid-in capital and a reduction in the
carrying  value  of  the  preferred  stock  and  preferred  stock  warrants.  In
accordance  with  EITF  00-27, "Application of EITF Issued No. 98-5, "Accounting
for  Convertible  Securities with Beneficial Conversion Features or Contingently
Adjustable  Conversion  Ratios,"  to  Certain  Convertible  Instruments,"  the
beneficial  conversion feature is being amortized over the term of the preferred
stock  warrant  of one year, resulting in a deemed dividend for the three months
ended  December  31,  2001  of  $367,000.

NOTE  9.  SUBSEQUENT  EVENTS

On  December  5,  2001,  the Company announced a voluntary stock option exchange
program  for  its  employees.  Members  of  the  Company's  board  of directors,
executive  officers  and  consultants  holding  options  were  ineligible  to
participate.  Under  the program, the Company's employees had the opportunity to
surrender  previously granted outstanding stock options in exchange for an equal
number  of replacement options to be granted at a future date.  The tender offer
period  ended  on January 4, 2002.  Options to acquire a total of 848,964 shares
of  the Company's common stock with exercise prices ranging from $1.15 to $25.31
were  surrendered  for  cancellation  under the program.  Employees who tendered
their options will not lose any credit for vesting during the six months and one
day  between  the  cancellation  of the old options and the granting of the new.

As  a  result  of the stock option exchange program, the Company is obligated to
grant  replacement  options  to  acquire  an  equivalent number of shares of the
Company's  common  stock  on  or  about July 8, 2002.  The exercise price of the
replacement  options  will  be  equal  to the fair market value of the Company's
common  stock  on  the  date  of  grant.  The  stock option exchange program was
designed  to comply with Financial Accounting Standards Board Interpretation No.
44,  "Accounting  for Certain Transactions Involving Stock Compensation," and is
not  expected to result in any additional compensation charges or variable award
accounting.

On  January  4,  2002,  the  Company  issued 3,899,756 shares of common stock to
Vivant!  Corporation  pursuant  to the Asset Acquisition Agreement dated May 22,
2001,  as  additional  consideration for the assets acquired from Vivant in June
2001.  Fair  value  of  these  shares  is  included  in the purchase price so no
adjustment  is  necessary.  These shares were issued pursuant to Section 4(2) of
the  Securities  Act  of 1933, as amended (the "Securities Act"), in reliance on
such  entity's  representations  to  us that it was acquiring the securities for
investment  purposes  and not with any present intent to further distribute such
securities.


                                       13
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF  OPERATIONS

You  should  read  the  following  discussion  in  conjunction  with the interim
unaudited condensed consolidated financial statements and related notes included
in  this  report,  and  with  Management's  Discussion and Analysis of Financial
Condition  and Results of Operations and related financial information contained
in  our  Annual  Report  on Form 10-K/A for the fiscal year ended June 30, 2001.

Except  for  historical  information,  this  report  contains  forward-looking
statements  within  the meaning of Section 27A of the Securities Act of 1933 and
Section  21E  of  the  Securities  Exchange  Act of 1934.  These forward-looking
statements  involve  risks  and  uncertainties,  including,  among other things,
statements  regarding  our  future  revenue  growth  prospects,  our  expense
projections  for  future  periods  and  our  future financing needs.  Our actual
results  may  differ  significantly  from those projected in the forward-looking
statements.  Factors  that  might  cause  or  contribute  to  these  differences
include,  but  are not limited to, those discussed in the section below entitled
"Factors  That  May  Affect Future Results of Operations."  You should carefully
review  these  risks  as  well  as  the  discussion  of  risks and uncertainties
contained  in  our  Annual  Report  on  Form  10-K/A  under  the  caption
"Business-Factors  That  May  Affect  Future Results."  You are cautioned not to
place  undue  reliance on the forward-looking statements, which speak only as of
the  date  of this Quarterly Report on Form 10-Q.  We undertake no obligation to
publicly  release  any  revisions  to  the forward-looking statements or reflect
subsequent  events  or  circumstances  after  the  date  of  this  document.

OVERVIEW

Evolve is a leading provider of service delivery solutions that optimize the way
organizations drive revenue and value through people and projects.  Our Evolve 5
software  suite  integrates and streamlines the core processes that are critical
to  services-oriented  organizations,  which  center  around  managing  project
portfolios,  project  opportunities,  professional resources (including contract
workers)  and  service  delivery.  Our solution combines the efficiency gains of
automating  core  business  processes  with the benefits of on-line intercompany
collaboration,  creating  a  service  delivery  platform  for  a  variety  of
project-driven  services  organizations.

We  have  licensed  our  solution  to  over  one  hundred  customers  who  have
collectively  purchased  it  to manage over 86,000 professionals.  Our customers
include professional services firms such as EDS and Cap Gemini Sogeti, high tech
services  organizations at companies such as Sun Microsystems, Novell and Cognos
and Corporate IT organizations in companies such as Pershing, Autodesk and Fleet
Financial.

Evolve  was  founded in February 1995.  From our inception through December 1998
our  activities, funded by the venture capital we raised, consisted primarily of
building  our  business  infrastructure, recruiting personnel and developing our
software and service offerings.  Our Evolve solution was first made commercially
available  in  March  1999.  We  recognized  our  first revenues from the Evolve
solution  during the quarter ended March 31, 1999.  We have incurred substantial
losses  since  inception  and  we  anticipate  that  we  will  continue to incur
operating  losses as we make the investments necessary to run our business.  Our
accumulated  deficit  at  December  31,  2001,  was  $244.1  million.

On  September  23, 2001, we signed a Series A Preferred Stock Purchase Agreement
with new and existing investors for a private placement of 1.3 million shares of
convertible  preferred  stock  at  $10.00  per  share  for total proceeds of $13
million as well as warrants to purchase up to 6.5 million shares of common stock
at  $1.00  per  share.  In  addition, we issued warrants to purchase 1.3 million
additional  shares  of  convertible  preferred  stock  for  additional potential
proceeds  of  $13  million,  which will also include, upon exercise, warrants to
purchase  an  additional  6.5 million shares of common stock at $1.00 per share.
Closing  of  the  arrangement  and receipt of $13 million ($12.4 million, net of
issuance  costs)  occurred  on  October  9,  2001.

Our  critical  accounting  policies are summarized in the notes to the condensed
consolidated  financial  statements.

RESULTS  OF  OPERATIONS

REVENUES

Total  revenues  were $2.2 million for the three months ended December 31, 2001,
compared  with  revenues  of  $9.3  million  for  the  comparable  2000  period,
representing a 76% decrease in total revenues.  Total revenues were $5.9 million
for  the  six  months  ended  December 31, 2001, compared with revenues of $16.2
million  for  the  comparable  2000 period, representing a 63% decrease in total
revenues.  For  the  quarter  ended  December 31, 2001, sales to three customers
accounted  for  42% of total revenues.  For the quarter ended December 31, 2000,
no  customer  accounted  for  more  than  10%  of  total  revenues.


                                       14
<PAGE>
The  decrease  in revenues is attributable to our effort to diversify our client
base  to  include  global  services  companies, services divisions of technology
companies  and  Corporate  IT  organizations  in  Global  2000  companies  and a
concurrent  loss  of  revenues  from  our  traditional  client  base  of
technology-oriented  consultants  and design and integration services providers.
These  types  of  companies generally have extended sales cycles.  Additionally,
sales  across all customer segments have been impacted by the recent downturn in
the  economy  and  subsequent  reductions  in  corporate  IT  spending.

We classify our revenues as either Solutions revenues or Subscriptions revenues.
Solutions  revenues  consist principally of software licenses and implementation
services while Subscriptions revenues consist principally of application service
provider ("ASP") fees and maintenance subscriptions.  For the three months ended
December  31,  2001,  Solutions  revenues  and  Subscriptions revenues were $1.1
million  each.  For the three months ended December 31, 2000, Solutions revenues
and Subscriptions revenues were $6.4 million, or 70% of total revenues, and $2.8
million,  or  30%  of  total  revenues,  respectively.  For the six months ended
December  31,  2001,  Solutions  revenues  and  Subscriptions revenues were $3.4
million,  or  57% of total revenues, and $2.5 million, or 43% of total revenues,
respectively.  For  the  six  months ended December 31, 2000, Solutions revenues
and  Subscriptions  revenues  were  $11.5 million, or 71% of total revenues, and
$4.7  million,  or  29%  of  total  revenues,  respectively.

COST  OF  REVENUES

Our  cost  of revenues includes the costs directly associated with our Solutions
and Subscriptions revenues, including stock-based compensation.  The cost of our
Solutions  revenues  consists principally of payroll-related costs for employees
and  consultants involved in providing services for implementation, training and
consulting.  The  cost  of our Solutions revenues also includes royalties due to
third-parties  for  integrated  third-party  technology, and to a lesser extent,
printing  costs  of  product documentation, duplication costs for software media
and  shipping  costs.  Cost  of Subscriptions revenues consists primarily of the
payroll-related  costs  for  employees involved in providing support services to
customers under maintenance contracts as well as payroll costs for employees and
consultants  involved  in  providing  services  for implementation, training and
consulting  for our ASP customers.  Cost of Subscriptions revenues also includes
hosting  fees  required  to  service  our  ASP  customers.

Total cost of revenues, excluding stock-based compensation, was $1.3 million for
the  three  months  ended  December 31, 2001, compared with $4.5 million for the
three  months  ended  December  31,  2000,  representing  a  72% decrease.  As a
percentage  of  total  revenues,  total  cost of revenues, excluding stock-based
compensation, was 58% and 49% for the quarters ended December 31, 2001 and 2000,
respectively.  Total  cost  of revenues, excluding stock-based compensation, was
$3.1  million  for  the  six  months ended December 31, 2001, compared with $8.5
million  for the six months ended December 31, 2000, representing a 63% decrease
in cost of revenues.  As a percentage of total revenues, total cost of revenues,
excluding  stock-based  compensation,  was  53% and 52% for the six months ended
December  31,  2001  and  2000,  respectively.

Cost  of  Solutions revenues was $949,000 and the cost of Subscriptions revenues
was  $331,000  for  the three months ended December 31, 2001.  Cost of Solutions
revenues  was  $3.2  million  and  the  cost  of Subscriptions revenues was $1.3
million  for  the quarter ended December 31, 2000.  As a percentage of Solutions
revenues,  cost  of  Solutions  revenues  was 90% and 50% for the quarters ended
December  31,  2001  and  2000,  respectively.  As a percentage of Subscriptions
revenues,  cost of Subscriptions revenues was 29% and 47% for the quarters ended
December  31,  2001  and  2000,  respectively.  As  a  percentage  of  Solutions
revenues,  cost  of  Solutions revenues was 70% and 53% for the six months ended
December  31,  2001  and  2000,  respectively.  As a percentage of Subscriptions
revenues,  cost  of  Subscriptions  revenues  was 31% and 50% for the six months
ended  December  31,  2001  and  2000,  respectively.

The  decrease  in  cost  of Solutions revenues was primarily attributable to the
decreased  costs  associated with employees and third-party consultants involved
in  providing  implementation,  training and consulting services to our customer
base.  The  number  of  employees  in our services organization decreased by 90%
from  December  31,  2000,  to  December  31,  2001.  The  decrease  in  cost of
Subscriptions  revenues  was  primarily  due  to  decreased  payroll  costs  for
employees  and third-party consultants involved in providing support services to
customers  under  maintenance  and  application  subscription contracts.  We are
seeking  to reduce our cost of Solutions revenues by having our customers engage
third-parties  to  provide  a  substantial  portion  of  services related to our
applications.


                                       15
<PAGE>
OPERATING  EXPENSES

SALES AND MARKETING.  Sales and marketing expenses consist primarily of employee
salaries,  benefits,  commissions  and  stock-based compensation, as well as the
costs  of  advertising,  public  relations,  website  development,  trade shows,
seminars,  promotional  materials  and  other  sales  and  marketing  programs.
Additionally,  sales  and  marketing expenses include costs of service personnel
that  have  not  been  treated as part of cost of revenues.  Sales and marketing
expenses,  excluding  stock-based compensation, decreased by 67% to $3.7 million
for  the  quarter  ended  December  31, 2001, from $11.0 million for the quarter
ended  December  31,  2000.  Sales and marketing expenses, excluding stock-based
compensation, decreased by 63% to $8.2 million for the six months ended December
31,  2001,  from  $22.1 million for the six months ended December 31, 2000.  The
decrease  in  sales  and  marketing expenses resulted primarily from significant
workforce  reductions  implemented  during  the quarter ended June 30, 2001, and
continued  through  the  quarter  ended  December  31,  2001,  and a decrease in
advertising and marketing initiatives.  The number of employees in our sales and
marketing  organization decreased by 63% from December 31, 2000, to December 31,
2001.  We expect that the level of sales and marketing expenses will continue to
decline  in  the  next quarter as we experience the full effects of cost cutting
measures  taken  during  the  quarter  ended  December  31,  2001.

RESEARCH  AND  DEVELOPMENT.  Research and development expenses consist primarily
of  personnel  and related costs, including stock-based compensation, associated
with  our  product development efforts, including fees paid to third-parties for
engineering  consulting  services.  Research and development expenses, excluding
stock-based  compensation,  decreased  25%  to $3.0 million for the three months
ended  December  31, 2001, from $4.0 million for the three months ended December
31,  2000.  Research  and  development  expenses,  excluding  stock-based
compensation,  decreased  17%  to $6.5 million for the six months ended December
31,  2001,  from  $7.9  million for the six months ended December 31, 2000.  The
decrease  in  research and development expenses related primarily to a decreased
reliance on third-party consultants and our workforce reductions.  The number of
employees,  in  our research and development organization, decreased by 21% from
December  31, 2000, to December 31, 2001.  During the quarter ended December 31,
2001,  we  closed  our  software  development  center in India that became fully
operational during the quarter ended June 30, 2001.  We expect that the absolute
dollar  amount  of  research  and development expenses will remain stable in the
next  quarter.

GENERAL  AND  ADMINISTRATIVE.  General  and  administrative  expenses  consist
primarily  of employee salaries and expenses, including stock-based compensation
related  to  executive,  finance and administrative personnel, bad debt expense,
and  professional  service fees.  General and administrative expenses, excluding
stock-based  compensation,  decreased  32%  to $1.8 million for the three months
ended  December  31, 2001, from $2.7 million for the three months ended December
31,  2000.  General  and  administrative  expenses,  excluding  stock-based
compensation,  decreased  21%  to $4.1 million for the six months ended December
31,  2001,  from  $5.2  million for the six months ended December 31, 2000.  The
decrease  in  general  and  administrative  expenses resulted primarily from our
workforce  reductions, offset by an increase in bad debt expense.  The number of
employees  in  our general and administrative organization decreased by 64% from
December  31,  2000,  to  December  31,  2001.

We  increased  our  bad  debt  allowance  by  $220,000  during the quarter ended
December  31,  2001.  This  increase  resulted  from the impact of the continued
worsening of the general economic situation on selected customers, in particular
e-business  consultancies  that  focused  on  web  development  and  e-commerce
integration.  Many  of these customers have encountered difficulties in securing
additional  financing  to  meet  their  obligations  and  have  sought  to limit
expenditures  to  conserve  their  cash  balances.  We  continue  to monitor our
customers' ability to pay throughout the term of the applicable arrangements and
will  adjust  the provision for bad debt allowance or defer revenue recognition,
as  appropriate.

We  expect  that  general  and administrative expenses will remain stable in the
next  quarter.

STOCK-BASED  AND  RELATED  COMPENSATION  CHARGES.  We  incurred  stock-based
compensation  in  connection  with  stock  option grants and sales of restricted
stock  to our employees at exercise or sales prices below the deemed fair market
value  of  our  common  stock  for  accounting purposes, as a result of amending
certain  stockholder  loans and accelerated vesting rights granted to terminated
executives and as a result of stock options issued to employees in November 2001
in conjunction with the initiation of a stock exchange program beginning January
2002.  Based  on  the  remaining balances at December 31, 2001, our results from
operations  will include stock-based compensation expense, at a minimum, through
2004.  We  recorded stock-based charges of $1.4 million and $7.7 million for the
three  months  ended  December 31, 2001, and December 31, 2000, respectively. We
recorded  stock-based  charges  of  $2.6  million  and $16.6 million for the six
months ended December 31, 2001, and December 31, 2000, respectively. Stock-based
charges  are  amortized  on an accelerated basis and the decrease in stock-based
amortization  resulted  primarily  from  the  resulting decline in the cost over


                                       16
<PAGE>
time.  In  addition,  employee  terminations  in  the current and prior quarters
reduced  current  quarter charges and also reversed some amortization previously
taken  on  an  accelerated  basis.

In  October  2001,  the  Board of Directors voted to modify existing stockholder
loans, which were issued to allow board members, officers and selected employees
to  exercise  stock options and purchase restricted stock, from full-recourse to
non-recourse  and to extend their due dates, in the event of termination, thirty
days  to  fifteen  months  after the date of termination.  The loans are secured
only  by  the  underlying stock, which they were used to purchase.  As a result,
outstanding  stockholder  loans  and related interest were revalued to their net
realizable  value  of $.37 per share at December 31, 2001, resulting in a charge
of  $6.4  million.  Until  they are due or repaid, if earlier, the loans will be
revalued  each  quarter to their net realizable value as determined by the stock
price  at  that  time.

Amortization  of  stock-based  compensation and the stockholder loan revaluation
consisted  of  the  following  (in  thousands):

<TABLE>
<CAPTION>
                                      THREE MONTHS ENDED      SIX MONTHS ENDED
                                          DECEMBER 31,          DECEMBER 31,
                                     ---------------------  ---------------------
                                        2001       2000        2001       2000
                                     ----------  ---------  ----------  ---------
<S>                                  <C>         <C>        <C>         <C>
Cost of revenues:
  Solutions
     Stock-based charges             $      (3)  $     622  $    (138)  $   1,366

Operating expenses
  Sales and marketing
     Stock-based charges                    70       2,282        (25)      4,902
     Stockholders' loan revaluation      1,881           -      1,881           -
  Research and development
     Stock-based charges                   214       1,433        371       2,956
     Stockholders' loan revaluation      1,403           -      1,403           -
  General and administrative
     Stock-based charges                 1,088       3,355      2,414       7,418
     Stockholders' loan revaluation      3,126           -      3,126           -

                                     ----------  ---------  ----------  ---------
  Totals                             $   7,779   $   7,692  $   9,032   $  16,642
                                     ==========  =========  ==========  =========
</TABLE>

AMORTIZATION  OF  GOODWILL  AND OTHER INTANGIBLE ASSETS.  In connection with the
acquisition of Vivant! Corporation on June 29, 2001, and, with the assistance of
an  independent  valuation,  we  recorded $2.2 million for developed technology,
$717,000  for  goodwill  and  $187,000 for acquired workforce.  Additionally, in
connection  with  the  acquisition  of  InfoWide,  Inc.,  on  March 31, 2000, we
recorded  $32.6  million  in goodwill, purchased technology and other intangible
assets  including  in-process  technology  of  $3.1 million.  During the quarter
ended  June  30,  2001,  our  goodwill  and other intangibles were substantially
reduced  because of the write-off of $18.1 million resulting from the impairment
of  all the intangible assets that remained from the InfoWide acquisition.  As a
result  of  the acquisition of Vivant and the write-off of InfoWide, charges for
the  amortization  of  goodwill and other intangible assets declined to $401,000
for  the quarter ended December 31, 2001, from $2.7 million for the three months
ended  December  31, 2000.  We recorded charges for amortization of goodwill and
other  intangible  assets  of $802,000 and $5.4 million for the six months ended
December 31, 2001 and December 31, 2000, respectively.  We amortize goodwill and
other  intangible  assets  over  periods  not  exceeding  thirty-six  months.

RESTRUCTURING COSTS.  During the quarter ended December 31, 2001, we recorded an
$89,000  net  reversal  of  restructuring  charges.  In association with the new
board members from the October investment, we critically reviewed operations and
cost structure, during the quarter, and determined that a worldwide headcount of
approximately 135 was the appropriate strategic size.  This decision resulted in
the  involuntary  termination  of  61  employees or 30% of our workforce.  These
terminations  were  from all functions of our operations and included twenty-two
employees  from  the closure of the India research facility.  As a result of the
headcount  reduction,  we  recorded  charges  of  $1.2  million in severance and
benefits costs, $523,000 for the disposal of excess computer and other equipment
primarily  relating  to  the India operation, and a charge of $316,000 for costs
relating to the winding-down of the India operation.  These costs were partially
offset  by  a  $2.2 million reversal of previously accrued restructuring charges


                                       17
<PAGE>
for  the excess space at our Emeryville headquarters that resulted from amending
the  original  lease  to  relieve  us  of some future rental obligations.  These
charges  were  in  addition  to  the $693,000 in restructuring charges that were
recorded  in  the  quarter  ended  September  30,  2001 for a six-month total of
$604,000.

OTHER INCOME (EXPENSE), NET.  Other income (expense), net was ($1.8 million) and
$988,000  for  the quarters ended December 31, 2001 and 2000, respectively.  The
278%  decrease  resulted  primarily  from  common  stock warrant charges of $1.7
million  and  a  decline  in  our  cash  balances and bank interest rates, which
resulted  in  a $925,000 interest income reduction.  Other income (expense), net
was  ($1.5  million) and $1.8 million for the six months ended December 31, 2001
and  2000,  respectively.   The  184%  decrease resulted primarily from the $1.7
million  common  stock  warrant  charge and a $1.6 million reduction in interest
income.

BENEFICIAL  CONVERSION  OF  PREFERRED  STOCK.  We  recorded a dividend charge of
$367,000  million  for  the  quarter  ended  December  31, 2001, in respect of a
beneficial  conversion  feature  associated with the sale of 1,300,000 shares of
our  Series A Preferred Stock in October 2001.  We expect to record a beneficial
conversion  dividend  in  the  same  amount  in each of the next three quarters.

LIQUIDITY  AND  CAPITAL  RESOURCES

Net  cash  used  in  operating  activities for the six months ended December 31,
2001,  was $19.3 million compared with net cash used for operating activities of
$30.6  million  for  the  same  prior  year  period.  Cash  used  for  operating
activities for the six months ended December 31, 2001, resulted primarily from a
net  loss  of $28.0 million and a net decrease in assets and liabilities of $5.8
million,  partially  offset by stock-based charges and write-down of stockholder
loans  of  $9.0  million,  amortization  and  depreciation  of  $2.6  million,
restructuring charges of $1.1 million and remeasurement charges for common stock
warrants of $1.7 million.  Cash used for operating activities for the six months
ended  December  31, 2000, resulted primarily from a net loss of $47.6 and a net
decrease  in  assets  and  liabilities  of  $6.8  million,  partially  offset by
amortization  and depreciation of  $7.1 million and stock-based charges of $16.6
million.

Net  cash  used  by  investing  activities for the six months ended December 31,
2001,  was  $1.1  million compared with net cash used by investing activities of
$21.4 million for the same prior year period.  Cash used by investing activities
for the six months ended December 31, 2001, resulted primarily from the purchase
of  short-term  investments  of  $529,000 and a commitment of restricted cash of
$2.9  million  to support our Emeryville lease, partially offset by the maturity
of  $2.5  million  of short-term investments.  Cash used by investing activities
for the six months ended December 31, 2000, resulted primarily from the purchase
of  $16.9  million  of  short-term  investments,  the  purchase  of property and
equipment of $5.8 million and the purchase of intangibles of $700,000, partially
offset  by  the  maturity  of  $2.0  million  of  short-term  investments.

Net  cash provided by financing activities for the six months ended December 31,
2001,  was $11.2 million compared with net cash provided by financing activities
of  $56.8  million for the same prior year period.  Cash provided from financing
activities  for  the six months ended December 31, 2001, resulted primarily from
the  net  proceeds  of  our preferred stock issuance of $12.4 million, partially
offset  by  principal  payments  on  our  bank  credit  facility of $990,000 and
payments  of  capital  lease  obligations  of  $295,000.  Net  cash  provided by
financing  activities  for  the  six  months  ended  December 31, 2000, resulted
principally  from  the  net  proceeds  of  our  initial public offering of $46.5
million  and  to  a  lesser extent preferred and common stock issuances of $13.9
million,  partially  offset by debt repayments of $3.3 million and capital lease
obligations  of  $362,000.

At  December  31,  2001,  we  had  cash  and  cash equivalents of $10.6 million,
short-term  investments  of  $869,000, and $2.9 million in short-term restricted
cash.  Pursuant  to  our  term  loan  facility,  we are required to meet certain
financial  covenants,  including a minimum cash balance covenant of $8.0 million
in  cash  and cash equivalents, including restricted cash.  In order to maintain
compliance  with  this  loan covenant and to satisfy our ongoing working capital
requirements,  we  will  need to secure additional capital.  We are currently in
discussions  with  our  Series  A  Preferred Stock investors to raise additional
capital and may also seek additional capital from other sources.  The additional
shares  of  our  capital  stock  that  we may issue in any such financings would
result  in additional dilution, which may be substantial.  We cannot assure that
such  capital  will  be available on acceptable terms, if at all.  The investors
participating  in  the  private  placement  of our Series A Preferred Stock hold
warrants  to  purchase  additional  shares  of  our Series A Preferred Stock and
common stock which, if exercised in full, would result in additional proceeds to
us  of $26 million.  However, these warrants are exercisable at prices in excess
of  the  current  market price of our common stock and we do not anticipate that
these  warrants  will  be  exercised  at their current exercise prices absent an
appreciation  in  the  value  of  our common stock.   If we are unable to secure
sufficient  additional  financing,  we  may  violate  the  minimum  cash balance
covenant  at  March  31, 2002, which would give the lender the right to call the


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<PAGE>
term  loan.  This  would  require us to pay the balance of the loan during April
2002, which is expected to be $3.2 million, which would, in turn, further reduce
our  cash  balance.  If  we  are  unable to raise additional capital, we will be
unable  to  sustain  our  operations  at  current  levels and may not be able to
sustain  operations  at  all.

On  November  13,  2001, we revised an existing credit arrangement and signed an
amended Loan and Security Agreement to restructure the excess credit facilities,
to  obtain  a  waiver  of  certain  defaults under the credit arrangement and to
reduce  the  line-of-credit  to  $3 million and the term loan credit facility to
$4.4  million  with  interest accruing at the rate of the bank's prime rate plus
0.75% and 1.00%, respectively.  At December 31, 2001, these rates were 5.50% and
5.75%,  respectively.  As  of December 31, 2001, we had utilized $4.8 million of
the  term  loan credit facility and had repaid $990,000.  The loan will be fully
repaid  by  July  1,  2003.  Both  the  line-of-credit  and the term loan credit
facility  are  collateralized  by  all  of  our  assets,  including intellectual
property,  except  for previously leased equipment.  In connection with the loan
amendment  the  bank approved new financial covenants for the periods commencing
October  1,  2001.  Under  the  new  covenants, the Company is required to:  (1)
maintain  at  all times a minimum bank liquidity ratio of 1.50 to 1.00, reducing
to  a  ratio  of  1.25  to 1.00 on January 31, 2002, (the cash component of this
ratio  is  required to be held at the bank); (2) beginning with the month ending
December  31,  2001,  maintain  on  a monthly basis the greater of (a) a minimum
company  liquidity ratio of 1.75 to 1.00 or (b) $14,000,000 in unrestricted cash
(unrestricted  cash  will include any restricted cash held by the bank) reducing
to  $8,000,000 on January 31, 2002; (3) beginning with the month ending December
31,  2001,  not  exceed  a  leverage  maximum  of  2.25  to 1.00; and (4) meet a
milestone  covenant  of  obtaining  at  least  $10,000,000  in  new  equity from
investors  acceptable to the bank by October 15, 2001.  At December 31, 2001, we
were  in compliance with all covenants.  Based on our current operating plan, we
will  need  to  raise  additional equity financing by March 31, 2002 to maintain
compliance  with  the  foregoing  covenants  and  avoid  an  acceleration of the
outstanding  balance.

FACTORS  THAT  MAY  AFFECT  FUTURE  RESULTS  OF  OPERATIONS

WE  WILL  NEED ADDITIONAL CAPITAL TO FUND CONTINUED BUSINESS OPERATIONS AT THEIR
CURRENT  LEVELS  IN FISCAL 2002 AND 2003 AND SUCH FINANCING MAY NOT BE AVAILABLE
ON  FAVORABLE  TERMS,  IF  AT  ALL.

We  require  additional  capital  to  fund our business operations.  The rate at
which  our  capital  is utilized is affected by the level of our revenues and by
the  level  of  our  fixed  expenses  (including  employee  related expenses and
expenses  relating  to  real estate) and variable expenses.  Substantial capital
has  been  used  to  fund  our  operating  losses.  Since  inception,  we  have
experienced  negative  cash  flows  from  operations  and  expect  to experience
significant  negative cash flows from operations for the foreseeable future.  We
had  a  cash  and  cash  equivalents balance of $11.4 million as of December 31,
2001,  which  does  not  include our restricted cash of $2.9 million.  We have a
term  loan facility that may be called by the lender as of March 31, 2002, if we
do  not  meet  certain  financial  covenants,  including  a minimum cash balance
covenant  of  $8.0 million in cash and cash equivalents and restricted cash.  We
are  currently  in  discussions  with  our Series A Preferred Stock investors to
raise  additional  capital  and  may  also  seek  additional  capital from other
sources.  The  additional  shares  of our capital stock we may issue in any such
financings  would  result  in additional dilution, which may be substantial.  We
cannot  assure  that  such  capital will be available on acceptable terms, if at
all.  If we are unable to secure sufficient additional financing, we risk having
our  bank  term  loan  called,  which  would  reduce  our  available  cash  by
approximately $3.2 million during April 2002.  Consequently, if we are unable to
raise additional capital, we will be unable to sustain our operations at current
levels,  and  may  not  be  able  to  sustain  operations  at  all.

In addition to the financing required to meet our current cash flow projections,
additional  capital  may  be  required  if  one  or more of the following occur:

     -    our  revenues from the sale of our products may fall below our current
          expectations  because  of  the current economic slowdown or otherwise.
     -    forecasted  cash collections from customers may decline if some of our
          customers  become  insolvent  or  encounter  financial  difficulties.
     -    we  may  be  unable  to  comply with the financial and other covenants
          required  under  our  existing  credit  facilities  and  these  credit
          facilities  may  be  withdrawn  as  a  result.
     -    we may encounter opportunities that we wish to pursue to acquire other
          businesses  or  technologies  for  cash  consideration.

The  investors  participating in the private placement of our Series A Preferred
Stock  hold  warrants  to  purchase  additional shares of our Series A Preferred
Stock  and  common stock which, if exercised in full, would result in additional
proceeds  to  us  of  $26  million.  However,  these warrants are exercisable at


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<PAGE>
prices  in  excess of the current market price of our common stock and we do not
anticipate  that  these  warrants  will  be  exercised at their current exercise
prices  absent  an  appreciation  in  the  value  of  our  common  stock.

OUR  FUTURE  OPERATING RESULTS MAY NOT MEET OUR CURRENT EXPECTATIONS DUE TO MANY
FACTORS,  AND  ANY  OF  THESE  COULD  CAUSE  OUR  STOCK  PRICE  TO  FALL.

We  believe  that  year-over-year comparisons of our operating results are not a
good  indication  of future performance.  It is likely that in some future years
our  operating  results  may be below the expectations of public market analysts
and  investors  due to factors beyond our control and, as a result, the price of
our  common  stock  may  fall.

Factors that may cause our future operating results to be below expectations and
cause  our  stock  price  to  fall  include:

     -    the  lack  of  demand  for  and  acceptance  of  our products, product
          enhancements  and  services;  for  instance,  as  we expand our target
          customer focus beyond the information technology service consultancies
          and  into  internal  information  technology of corporate customers as
          well  as  into overseas markets, we may encounter increased resistance
          to  adoption  of  our  business  process  automation  solutions;
     -    unexpected  changes  in  the  development,  introduction,  timing  and
          competitive  pricing  of  our  products  and  services or those of our
          competitors;
     -    any  inability to expand our direct sales force and indirect marketing
          channels  both  domestically  and  internationally;
     -    difficulties  in  recruiting  and  retaining  key  personnel;
     -    lengthening  of  our  sales  cycles;
     -    unforeseen  reductions  or reallocations of our customers' information
          technology  infrastructure  budgets;  and
     -    any  delays  or  unforeseen costs incurred in integrating technologies
          and  businesses  we  may  acquire.

We plan to aggressively and prudently manage our operating expenses with a focus
on  our  research  and development organization and our direct sales group.  Our
operating  expenses  are  based  on  our expectations of future revenues and are
relatively  fixed in the short-term.  If revenues fall below our expectations in
any quarter, and we are not able to quickly reduce our spending in response, our
operating  results  for that quarter would be lower than expected, and our stock
price  may  fall.

WE  HAVE  INCURRED  LOSSES  SINCE  INCEPTION,  AND WE MAY NOT BE ABLE TO ACHIEVE
PROFITABILITY.

We  have  incurred  net losses and losses from operations since our inception in
1995  and  we  may  not  be  able to achieve profitability in the future.  As of
December  31,  2001,  we  had  an  accumulated  deficit  of approximately $244.1
million.  Since  inception,  we have funded our business primarily from the sale
of  our  stock  and by borrowing funds, not from cash generated by our business.
Despite recent cost reductions, we expect to continue to incur significant sales
and  marketing,  research  and  development,  and  general  and  administrative
expenses.  As  is  the  case  with  many  enterprise  software  companies,  we
experienced a severe decline in revenues during the 2001 calendar year.  We have
experienced  sequential  quarterly  declines  in  revenue  for each of the three
quarters  ending  December  31, 2001, and we may experience insufficient revenue
growth  or  further  declines  in  future  periods.  As  a  result, we expect to
experience  continued  losses and negative cash flows from operations.  If we do
achieve  profitability,  we may not be able to sustain or increase profitability
on  a  quarterly  or  annual  basis  in  the  future.

WE  MAY LOSE EXISTING CUSTOMERS, OR BE UNABLE TO ATTRACT NEW CUSTOMERS, IF WE DO
NOT  DEVELOP  NEW  PRODUCTS  OR  ENHANCE  OUR  EXISTING  PRODUCTS.

If  we  are  not  able  to maintain and improve our product-line and develop new
products,  we may lose existing customers or be unable to attract new customers.
We may not be successful in developing and marketing product enhancements or new
products on a timely or cost-effective basis.  These products, if developed, may
not  achieve  market  acceptance.

A limited number of our customers expect us to develop product enhancements that
may address their specific needs.    If we fail to deliver these enhancements on
a timely basis, we risk damaging our relationship with these customers.  We have
experienced  delays  in  the  past  in  releasing  new  products  and  product
enhancements  and  may experience similar delays in the future.  These delays or
problems  in  the  installation  or implementation of our new releases may cause
some  of  these  customers  to forego additional purchases of our products or to
purchase  those  of  our  competitors.


                                       20
<PAGE>
WE MUST DIVERSIFY OUR CUSTOMER BASE IN ORDER TO ENHANCE OUR REVENUE AND MEET OUR
GROWTH  TARGETS.

We have historically derived a substantial percentage of our revenues from sales
of  our  products  and  services  to  firms  that  provide  technology-oriented
consulting,  design  and  integration  services,  including  a  number  of firms
specializing  in  Website design and e-commerce application development.  Growth
among  these  "e-business"  consultancies has slowed dramatically, and many such
firms  have  ceased  operations  or have encountered substantial difficulties in
raising  capital  to  fund  their  operations.  In  anticipation  of  these
developments,  we commenced a program to aggressively diversify our client base,
targeting  both  established  consulting services companies and in-house service
departments  of  large  corporations.  While  we  have  recorded  a  number  of
significant  customer  wins  in  these  areas,  we may, in the future, encounter
significant challenges in further expanding our customer base.  More established
corporations  are  often  more  reluctant  to  implement  innovative  enterprise
technologies  such  as  ours,  in  part because they often have made substantial
investments  in  legacy  applications  and  information  systems.  We  may  also
encounter  extended  sales  cycles  with  such prospective customers, and slower
rates of adoption of our solutions within their organizations.  As we reduce our
sales  force  headcount  in  order  to  reduce  expenses,  our sales capacity is
diminished  which may impact our ability to diversify our customer base.  All of
these factors may adversely affect our ability to sustain our revenue growth and
attain  profitable  operations.

FINANCIAL  DIFFICULTIES  OF  SOME  OF  OUR  CUSTOMERS  MAY  ADVERSELY AFFECT OUR
OPERATING  RESULTS.

As  public  valuations for many businesses have declined substantially in recent
months,  some of our customers may encounter difficulties in securing additional
financing  to  meet  their  obligations,  or  may  seek to limit expenditures to
conserve  their  cash  resources.  As a result, we may encounter difficulties in
securing payment of certain customer obligations, when due, and may be compelled
to  increase our bad debt reserves.  Any difficulties encountered in collections
from  customers  would  also adversely affect our cash flow, and would adversely
impact  our  operating  results.

WE  REDUCED  OUR WORKFORCE DURING THE SECOND HALF OF THE PRIOR FISCAL YEAR, AND,
IF  WE  FAIL  TO MANAGE THIS REDUCTION IN WORKFORCE, OUR ABILITY TO GENERATE NEW
REVENUE,  ACHIEVE  PROFITABILITY  AND  SATISFY  OUR  CUSTOMERS  COULD BE HARMED.

We  reduced  our workforce during the second half of the prior fiscal year after
growing  significantly  the  first  half of the year and in previous years.  Any
failure  to  manage  this  reduction  in  workforce  could impede our ability to
increase revenues and achieve profitability.  We reduced our number of employees
from  326  at  June  30,  2000,  to  133  as  of  December  31,  2001.

As  we  reduce  our sales force headcount in order to reduce expenses, our sales
capacity  is  reduced  which  may  impact  our revenue growth.  As we reduce our
service  employee  headcount,  including  our  consulting services, training and
technical  support  personnel,  we  may not be able to provide the same level of
customer  responsiveness or expertise, and customer satisfaction may be impacted
as  a  result.

In  order  to  manage  our  reduced  workforce,  we  must:

     -    hire,  train  and  integrate  new  personnel in response to attrition;
     -    continue  to  augment  our  management  information  systems;
     -    manage  our  sales  and  services  operations,  which  are  in several
          locations; and
     -    expand  and  improve  our  systems  and  facilities.

IF  THE  MARKET  FOR  PROCESS  AUTOMATION  SOLUTIONS  FOR  PROFESSIONAL SERVICES
ORGANIZATIONS  AND  OTHER  STRATEGIC  WORKFORCES  DOES NOT CONTINUE TO GROW, THE
GROWTH  OF  OUR  BUSINESS  WILL  NOT  BE  SUSTAINABLE.

The  future  growth  and  success  of  our  business  is  contingent  on growing
acceptance  of,  and  demand  for,  business  process  automation  solutions for
professional  services  organizations  and  other  strategic  workforces.
Substantially  all of our historical revenues have been attributable to the sale
of  automation  solutions  for  professional  services organizations.  This is a
relatively  new  enterprise  application  solution category, and it is uncertain
whether major services organizations as well as service departments and internal
departments  of  major  corporations  will  choose  to  adopt process automation
systems.  While  we  have  devoted  significant  resources  to  promoting market
awareness  of our products and the problems our products address, we do not know
whether  these  efforts  will be sufficient to support significant growth in the
market  for  process  automation  products.  Accordingly,  the  market  for  our
products  may  not  continue  to  grow  or,  even if the market does grow in the
immediate  term,  that  growth  may  not  be  sustainable.


                                       21
<PAGE>
REDUCTIONS  IN  CAPITAL  SPENDING  BY  CORPORATIONS  COULD REDUCE DEMAND FOR OUR
PRODUCTS.

Historically,  corporations  and  other  organizations  have tended to reduce or
defer  major  capital  expenditures  in  response  to  slower economic growth or
recession.  Market  analysts have observed a significant reduction in the growth
of  corporate  spending  on  information  technology projects in response to the
current  economic  slowdown.  To  the  extent  that current economic uncertainty
persists,  some of the prospective customers in our current sales pipeline could
choose  to postpone or reduce orders for our products, or may delay implementing
our  solutions  within  their  organizations.  In  addition,  existing customers
seeking  to  reduce  capital expenditures may cancel or postpone plans to expand
use  of  our  products  in additional operating divisions, or may defer plans to
purchase  additional  modules of our solutions.  Any of the foregoing would have
an adverse impact on our revenues and our operating results, particularly if the
current  period  of  volatility  in  the stock market and the general economy is
prolonged.

ANY  INABILITY  TO  ATTRACT  AND RETAIN SENIOR EXECUTIVE OFFICERS AND ADDITIONAL
PERSONNEL  COULD  AFFECT  OUR  ABILITY  TO  SUCCESSFULLY  GROW  OUR  BUSINESS.

We  are  continuing  our  searches for a permanent Chief Executive Officer and a
Vice  President  of  Sales.  Our  future performance will depend, in significant
measure, on our ability to recruit highly qualified individuals to serve in such
positions and the ability of these new executives to work effectively with other
members of our management team as well as key employees, customers and partners.
In  addition,  if  we  are  unable  to  hire  and  retain a sufficient number of
qualified personnel, particularly in sales, marketing, research and development,
services  and  support, our ability to grow our business could be affected.  The
loss  of  the  services  of  our  key  engineering, sales, services or marketing
personnel  would  harm our operations.  For instance, loss of sales and customer
service  representatives  could  harm  our  relationship with the customers they
serve,  loss of engineers and development personnel could impede the development
of  product  releases  and  enhancements  and  decrease our competitiveness, and
departure of senior management personnel could result in a loss of confidence in
our  company by customers, suppliers and partners.  None of our key personnel is
bound by an employment agreement, and we do not maintain key person insurance on
any of our employees.  Because we, like many other technology companies, rely on
stock  options  as a component of our employee compensation, if the market price
of  our  common  stock  decreases  or  increases  substantially, some current or
potential  employees  may perceive our equity incentives as less attractive.  In
that  case,  our  ability  to  attract  and  retain  employees  may be adversely
affected.

IF  WE  FAIL  TO  EXPAND  OUR  RELATIONSHIPS  WITH  THIRD-PARTY  RESELLERS  AND
INTEGRATORS,  OUR  ABILITY  TO  GROW  REVENUES  COULD  BE  HARMED.

In  order  to  grow  our  business,  we  must establish, maintain and strengthen
relationships  with  third-parties,  such  as  information  technology  ("IT")
consultants and systems integrators as implementation partners, and hardware and
software  vendors  as  marketing  partners.  If  these  parties  do  not provide
sufficient,  high-quality  service  or  integrate  and  support  our  software
correctly,  our  revenues  may  be harmed.  In addition, these parties may offer
products  of other companies, including products that compete with our products.
Our  contracts  with third-parties may not require these third-parties to devote
resources to promoting, selling and supporting our solutions.  Therefore, we may
have  little control over these third-parties.  We cannot assure you that we can
generate  and maintain relationships that offset the significant time and effort
that  are necessary to develop these relationships, or that, even if we are able
to  develop  such  relationships,  these  third-parties will perform adequately.

WE MAY NOT BE ABLE TO INCREASE OUR REVENUES OR REDUCE OUR OPERATING EXPENDITURES
AS  PLANNED  AND  WE  MAY NEED TO IMPLEMENT ADDITIONAL RESTRUCTURING ACTIVITIES.

We are attempting to increase our revenues through marketing initiatives as well
as  increasing  the  scope of our customer base to include Global 2000 companies
and  internal  IT  organizations.  We  will need this revenue growth to meet our
cash  flow  breakeven  targets.  Because  of  market  uncertainties and a highly
competitive  environment,  we  cannot  be certain we will achieve these targets.

In  response to the current uncertain economic environment and volatility in the
public  equity markets, we recently implemented significant measures designed to
reduce  our  operating  expenses  and  enhance  our  ability to attain operating
profitability.  For  example,  from the quarter ended December 31, 2000 compared
with  the  quarter  ended  December  31,  2001,  we  reduced  our nonstock-based
recurring  departmental  expenses  127%  from  $22.3  million  to  $9.8 million.

In  order  to  achieve operating profitability, we will also need to achieve our
revenue  growth  targets  and  maintain  the  foregoing  cost  savings in future
quarters.  Numerous  factors  could  impede  our  ability  to further manage our


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<PAGE>
operating  expenses.  For  instance,  we currently expect to achieve significant
expense  reductions  by  limiting  the  headcount  of our services organization;
however,  we  may not be able to achieve the desired savings if we cannot engage
and  qualify third-party integration and support partners as rapidly as we hope.
In  addition,  if  our  revenue  growth  targets cannot be achieved, we would be
forced  to seek expense reductions in excess of our current plans, which may not
be  achievable.  Any  of  these developments could impede our ability to achieve
profitable  operations  in  accordance  with  current  expectations.

THE  LENGTHY  AND  UNPREDICTABLE SALES CYCLES FOR OUR PRODUCTS AND RESISTANCE TO
ADOPTION  OF  OUR  SOFTWARE  COULD  CAUSE  OUR  OPERATING  RESULTS TO FALL BELOW
EXPECTATIONS.

Our  operating results for future periods could be adversely affected because of
unpredictable  increases  in  our  sales cycles.  Our products and services have
lengthy and unpredictable sales cycles varying from as little as three months to
as  much as nine months, which could cause our operating results to be below the
expectations  of analysts and investors.  Since we are unable to control many of
the factors that will influence our customers' buying decisions, it is difficult
for  us  to  forecast  the  timing and recognition of revenues from sales of our
solutions.

Customers  in  our  target  market  often  take  an extended time evaluating our
products  before  purchasing  them.  Our  products may have an even longer sales
cycle  in  international  markets.  During  the  evaluation period, a variety of
factors, including the introduction of new products or aggressive discounting by
competitors and changes in our customers' budgets and purchasing priorities, may
lead  customers  to  not  purchase  or  to  scale  down orders for our products.

As  we target industry sectors and types of organizations beyond our core market
of  IT  services  consultancies, we may encounter increased resistance to use of
business  process automation solutions, which may further increase the length of
our sales cycles, increase our marketing costs and reduce our revenues.  Because
we are pioneering a new solution category, we often must educate our prospective
customers  on  the  use and benefit of our solutions, which may cause additional
delays  during  the  evaluation  process.  These  companies  may be reluctant to
abandon  investments  they  have made in other systems in favor of our solution.
In  addition,  IT  departments  of potential customers may resist purchasing our
solutions  for  a  variety  of  other  reasons,  particularly  the  potential
displacement  of  their  historical  role  in creating and running software, and
concerns  that  packaged software products are not sufficiently customizable for
their  enterprises.

OUR  SERVICES  REVENUES  HAVE  A  SUBSTANTIALLY  LOWER  MARGIN THAN OUR SOFTWARE
LICENSE  REVENUES,  AND  AN  INCREASE  IN  SERVICES REVENUES RELATIVE TO LICENSE
REVENUES  COULD  HARM  OUR  GROSS  MARGINS.

A  significant  shift  in  our revenue mix away from license revenues to service
revenues  would  adversely  affect our gross margins.  Revenues derived from the
services  we  provide  have  substantially  lower gross margins than revenues we
derive  from  licensing  our software.  The relative contribution of services we
provide to our overall revenues is subject to significant variation based on the
structure  and  pricing  of  arrangements  we  enter  into with customers in the
future,  and  the  extent  to  which  our  partners  provide  implementation,
integration,  training  and  maintenance services required by our customers.  An
increase  in  the  percentage  of  total  revenues  generated by the services we
provide  could  adversely  affect  our  overall  gross  margins.

DIFFICULTIES  WITH  THIRD-PARTY  SERVICES  AND  TECHNOLOGIES,  AS  WELL AS POWER
INTERRUPTIONS,  COULD  DISRUPT  OUR  BUSINESS, AND MANY OF OUR COMMUNICATION AND
HOSTING  SYSTEMS  DO  NOT  HAVE  BACKUP  SYSTEMS.

Many  of  our  communications  and  hosting  systems  do not have backup systems
capable  of mitigating the effect of service disruptions.  This requires that we
provide  continuous  and  error-free  access  to  our  systems  and  network
infrastructure.  We  rely  on  third-parties  to  provide  key components of our
networks  and  systems.  For  instance,  we rely on third-party Internet service
providers  to  host  applications for customers who purchase our solutions on an
ASP  basis.  We  also  rely on third-party communications services providers for
the  high-speed  connections that link our Web servers and office systems to the
Internet.  Any  Internet or communications systems failure or interruption could
result in disruption of our service or loss or compromise of customer orders and
data.  These  failures, especially if they are prolonged or repeated, would make
our  services  less  attractive  to  customers  and  tarnish  our  reputation.

In addition, our third-party Internet and communications services providers have
been  and may continue to experience serious financial difficulties, which could
result  in  the  disruption  of  our  ASP  offering  to our customers as well as
potentially  affecting  our  ability  to  operate  our  business.  The financial
difficulties  of  these third-party providers, especially if they go unresolved,
would  make  our ASP offering less attractive to customers and could tarnish our
reputation.


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<PAGE>
OUR  MARKETS  ARE  HIGHLY COMPETITIVE, AND COMPETITION COULD HARM OUR ABILITY TO
SELL  PRODUCTS  AND  SERVICES  AND  REDUCE  OUR  MARKET  SHARE.

Competition  could  seriously  harm  our  ability  to  sell  additional software
solutions  and  subscriptions  on prices and terms favorable to us.  The markets
for  our  products  are  intensely  competitive  and subject to rapidly changing
technology.  We  currently compete against providers of automation solutions for
professional  services organizations, such as Novient, Changepoint and Niku.  In
addition,  we  expect,  in  the  future,  to  face  increasing  competition from
providers  of enterprise application software vendors such as Peoplesoft, Siebel
and  SAP.  Companies  in  each  of  these areas may expand their technologies or
acquire  companies  to  support  greater  professional  services  automation
functionality  and capabilities.  In addition, "in-house" information technology
departments  of  potential  customers have developed or may develop systems that
substitute  for  some  of  the  functionality  of  our  product  line.

Some  of  our  competitors'  products may be more effective than our products at
performing  particular  functions  or be more customized for particular customer
needs.  Even  if  these  functions  are  more limited than those provided by our
products,  our  competitors'  software  products  could  discourage  potential
customers  from  purchasing our products.  A software product that provides some
of the functions of our software solutions, but also performs other tasks may be
appealing  to  these  vendors'  customers  because it would reduce the number of
different  types  of  software  necessary  to  effectively run their businesses.
Further, many of our competitors may be able to respond more quickly than we can
to  changes  in  customer  requirements.

Some  of  our competitors have longer operating histories, significantly greater
financial,  technical, marketing or other resources, or greater name recognition
than  we do.  This may cause potential customers to purchase their products even
if  they  provide  inferior features or functionality.  In addition, given their
greater  resources,  our competitors may be able to respond more quickly than we
can  to  new or emerging technologies and changes in customer requirements.  Our
competitors  have  made  and may also continue to make strategic acquisitions or
establish  cooperative  relationships  among  themselves  or with other software
vendors.  They  may  also establish or strengthen cooperative relationships with
our  current  or  future  partners, limiting our ability to promote our products
through  these  partners  and  limiting  the  number of consultants available to
implement  our  software.

OUR  REVENUES  DEPEND ON ORDERS FROM OUR TOP CUSTOMERS, AND IF WE FAIL TO SECURE
ONE  OR  MORE  ORDERS,  OUR  REVENUES  WILL  BE  REDUCED.

Historically,  we  have  received  a significant portion of our revenues in each
fiscal  period  from  a  small  number of customers.  Accordingly, the loss of a
single customer or customer prospect may have an impact on our operating results
if  we  depended  on  the  sale  of  our  products  to that customer to meet our
financial performance targets during a given fiscal period.  Our agreements with
existing  customers often do not include long-term commitments from customers to
continue  to  purchase  our products.  Moreover, a substantial percentage of new
customer  contracts  are  typically  signed in the last few weeks of each fiscal
quarter,  and  prospects  we  are  pursuing  have  often  made a decision not to
purchase  our products in the final stages of the sales cycle.  Accordingly, our
ability  to  meet  our financial targets during each fiscal period is subject to
substantial  variation and uncertainty, and the loss of one or more customers or
customer  prospects  can  cause  our  operating  results  to  fall  below  the
expectations  of  investors  and  analysts and adversely affect our stock price.

IF  OUR  PRODUCTS DO NOT STAY COMPATIBLE WITH WIDELY USED SOFTWARE PROGRAMS, OUR
REVENUES  MAY  BE  ADVERSELY  AFFECTED.

Our  software  products  must work with widely used software programs.  If these
software programs and operating environments do not remain widely used, or we do
not  update  our software to be compatible with newer versions of these programs
and  systems,  we  may  lose  customers.

Our  software  operates  only  on  a  computer server running both the Microsoft
Windows  NT or Sun Solaris operating system and database software from Microsoft
or  Oracle.  In order to increase the flexibility of our solution and expand our
client  base,  we  must  be  able  to  successfully  adapt it to work with other
applications  and operating systems.  For example, we are in the early stages of
customer  deployment  on  the  Sun  Solaris  operating  system.  Because  this
development  effort  is  not  complete,  we cannot be certain that we will avoid
significant technical difficulties that could delay or prevent completion of the
development  effort.


                                       24
<PAGE>
Our software connects to and uses data from a variety of our customers' existing
software  systems, including systems from Oracle and SAP.  If we fail to enhance
our  software  to connect to and use data from new systems of these products, we
may  lose  potential  customers.

THE  COST AND DIFFICULTIES OF IMPLEMENTING OUR PRODUCTS COULD SIGNIFICANTLY HARM
OUR  REPUTATION  WITH  CUSTOMERS  AND  HARM  OUR  FUTURE  SALES.

If  our  customers  encounter unforeseen difficulties or delays in deploying our
products  and  integrating them with their other systems, they may reverse their
decision  to  use  our  solutions, which would reduce our future revenues, could
impact  the  collection  of  outstanding receivables, and potentially damage our
reputation.  Factors that could delay or complicate the process of deploying our
solutions  include:

     -    customers may need to modify significant elements of their existing IT
          systems  in  order  to  effectively integrate them with our solutions;
     -    customers  may  need  to  establish  and  implement  internal business
          processes  within  their  organizations before they can make effective
          use  of  our  software;
     -    customers  may  need  to  purchase  and  deploy significant additional
          hardware  and  software  resources  and  may  need to make significant
          investments  in  consulting  and  training  services;  and
     -    customers  may  rely on third-party systems integrators to perform all
          or a portion of the deployment and integration work, which reduces the
          control  we  have  over  the implementation process and the quality of
          customer  service  provided  to  the  customer.

OUR  SALES  ARE CONCENTRATED IN THE IT SERVICES CONSULTING INDUSTRY, AND, IF OUR
CUSTOMERS  IN THIS INDUSTRY DECREASE THEIR INFRASTRUCTURE SPENDING OR WE FAIL TO
PENETRATE  OTHER  INDUSTRIES,  OUR  REVENUES  MAY  DECLINE.

Sales  to customers in the IT services consulting industry accounted for 65% and
40%  of  our  revenues  in  fiscal  2000 and 2001, respectively.  Given the high
degree  of  competition  and  the rapidly changing environment in this industry,
there is no assurance that we will be able to continue sales in this industry at
current  levels.  Many  of  our  customers  and  potential  customers  in the IT
services  consultancy  industry  have  witnessed drastic declines in their stock
prices,  which  could  limit  our  current  customers from purchasing additional
licenses  of our software, and could prevent potential customers from making the
kinds  of  infrastructure  investments  that  would  allow  them to purchase our
software  in  the first place.  In addition, we intend to market our products to
professional  services  departments  of large organizations in other industries.
Customers  in these new industries are likely to have different requirements and
may  require us to change our product design or features, sales methods, support
capabilities  or pricing policies.  If we fail to successfully address the needs
of  these  customers,  we  may  experience  decreased  sales  in future periods.

IF OUR PRODUCTS CONTAIN SIGNIFICANT DEFECTS OR OUR SERVICES ARE NOT PERCEIVED AS
HIGH  QUALITY,  WE  COULD  LOSE  POTENTIAL  CUSTOMERS  OR BE SUBJECT TO DAMAGES.

Our  products  are  complex  and  may contain currently unknown errors, defects,
integration problems or other types of failures, particularly since new versions
are frequently released.  In the past we have discovered software errors in some
of  our  products  after introduction.  We may not be able to detect and correct
errors  before  releasing our products commercially.  If our commercial products
contain  errors,  we  may:

     -    need to expend significant resources to locate and correct the errors;
     -    be  required  to  delay  introduction  of  new  products or commercial
          shipment  of  products;  or
     -    experience  reduced sales and harm to our reputation from dissatisfied
          customers.

Our  customers  also may encounter system configuration problems that require us
to  spend  additional consulting or support resources to resolve these problems.

Some  of  our  customers  have  indicated  to  us  that  they  want a completely
integrated  solution,  including  a  single  user  interface and single database
platform.  While  our product roadmap calls for such an integrated solution, any
delays  in  delivering  such  a  solution  to  our  customers  may cause them to
downgrade  their  opinion  of  our  software  or  to  abandon  our  software.

Because  our  customers  use  our software products for critical operational and
decision-making  processes,  product  defects  may  also  give  rise  to product
liability  claims.  Although  our  license  agreements  with customers typically
contain  provisions  designed to limit our exposure, some courts may not enforce


                                       25
<PAGE>
all  or  part of these limitations. Although we have not experienced any product
liability  claims  to date, we may encounter these claims in the future. Product
liability  claims,  whether  or  not  they  have  merit,  could:

     -    divert  the  attention  of  our  management and key personnel from our
          business;
     -    be  expensive  to  defend;  and
     -    result  in  large  damage  awards.

We  do  not  have  product  liability  insurance,  and even if we obtain product
liability  insurance,  it  may  not  be  adequate  to  cover all of the expenses
resulting  from  such  a  claim.

OUR BUSINESS MAY SUFFER IF WE ARE NOT ABLE TO PROTECT OUR INTELLECTUAL PROPERTY.

Our  success  is dependent on our ability to develop and protect our proprietary
technology  and  intellectual property rights.  We seek to protect our software,
documentation  and  other  written  materials primarily through a combination of
patent,  trade  secret, trademark and copyright laws, confidentiality procedures
and  contractual  provisions.  While we have attempted to safeguard and maintain
our  proprietary  rights,  we  do  not  know  whether  we  have  been or will be
completely  successful  in doing so.  Further, our competitors may independently
develop  or  patent  technologies  that  are  equivalent  or  superior  to ours.

We  have  been  issued  a patent in the United States covering the enablement of
dynamically  configurable  software  systems  by our Evolve software server.  We
also  have  two patent applications pending in the United States with respect to
the "Team Builder" functionality in our Resource Manager module and the time and
expense functionality of our Time and Expense module.  There can be no assurance
that  either  of  these  two applications would survive a legal challenge to its
validity  or  provide  significant  protection  to  us.  Despite  our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy aspects
of  our  products  or  obtain and use information that we regard as proprietary.
Policing  unauthorized use of our products is difficult.  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, particularly in foreign
countries  where  the laws may not protect proprietary rights as fully as in the
United  States.  We  can  offer  no  assurance  that our means of protecting its
proprietary  rights  will  be  adequate or that our competitors will not reverse
engineer  or  independently  develop  similar  technology.

IF  OTHERS  CLAIM  THAT  WE ARE INFRINGING THEIR INTELLECTUAL PROPERTY, WE COULD
INCUR  SIGNIFICANT  EXPENSES  OR  BE  PREVENTED  FROM  SELLING  OUR  PRODUCTS.

We  cannot  provide  assurance that others will not claim that we are infringing
their  intellectual  property  rights  or  that we do not in fact infringe those
intellectual  property  rights.  We  have  not  conducted  a search for existing
intellectual  property  registrations,  and  we  may  be unaware of intellectual
property  rights  of  others  that  may  cover  some  of  our  technology.

Any  litigation  regarding  intellectual  property  rights  could  be costly and
time-consuming and divert the attention of our management and key personnel from
our  business  operations.  The  complexity  of  the technology involved and the
uncertainty of intellectual property litigation increase these risks.  Claims of
intellectual  property  infringement  might also require us to enter into costly
royalty  or  license  agreements.

We  may  not be able to obtain royalty or license agreements on terms acceptable
to  us,  or  at  all.  We  also  may  be  subject  to  significant damages or an
injunction  against  use of our products.  A successful claim of patent or other
intellectual  property  infringement against us would have an immediate material
adverse  effect  on  our  business  and  financial  condition.

WE  CONTINUE  TO  OPERATE  INTERNATIONALLY,  BUT  WE  MAY  ENCOUNTER A NUMBER OF
PROBLEMS  IN  DOING  SO  WHICH  COULD  LIMIT  OUR  FUTURE  GROWTH.

We  may  not  be  able  to  successfully  market,  sell, deliver and support our
products  and  services  internationally.  Any  failure  to  build  and  manage
effective  international  operations  could  limit  the  future  growth  of  our
business.  Expansion  into  international  markets  will  require  significant
management  attention  and  financial resources to open additional international
offices  and  hire  international  sales  and support personnel.  Localizing our
products  is  difficult  and  may  take  longer  than  we  anticipate because of
difficulties  in  translation  and  delays  we  may experience in recruiting and
training  international  staff.  We are still in the process of developing local
versions  of  our products, and we have limited experience in marketing, selling
and  supporting  our  products  and  services  overseas.  Doing  business
internationally  involves  greater  expense  and  many  additional  risks,
particularly:


                                       26
<PAGE>
     -    differences  and unexpected changes in regulatory requirements, taxes,
          trade  laws,  tariffs,  intellectual  property  rights  and  labor
          regulations;
     -    changes  in  a  specific  country's  or region's political or economic
          conditions;
     -    greater  difficulty  in  establishing,  staffing  and managing foreign
          operations;  and
     -    fluctuating  exchange  rates.

SECURITY  CONCERNS,  PARTICULARLY  RELATED  TO  THE  USE  OF OUR SOFTWARE ON THE
INTERNET, MAY LIMIT THE EFFECTIVENESS OF AND REDUCE THE DEMAND FOR OUR PRODUCTS.

Despite  our  efforts to protect the confidential and proprietary information of
our customers stored on our Evolve ASP solution via virtual private networks and
other  security devices, there is a risk that this information will be disclosed
to  unintended  third-party  recipients.  To the extent our ability to implement
secure  private  networks,  on  our Evolve ASP service, is impaired by technical
problems,  or by improper or incomplete procedural diligence by either ourselves
or  our  customers,  sensitive  information  could  be  exposed to inappropriate
third-parties  such as competitors of our customers, which may in turn expose us
to  liability  and  detrimentally  impact  our  customers' confidence in our ASP
service.

RESISTANCE  TO  ONLINE  USE  OF  PERSONAL  INFORMATION  REGARDING  EMPLOYEES AND
CONSULTANTS  MAY  HINDER THE EFFECTIVENESS OF AND REDUCE DEMAND FOR OUR PRODUCTS
AND  SERVICES.

Companies  store  information on our ASP offering and on online networks created
by  our  customers,  which  may include personal information of their employees,
including  employee backgrounds, skills, and other details.  These employees may
object  to online compilation, transmission and storage of such information.  To
the  extent  that European companies and customers will have access to it (given
the  global  nature  of  the  Internet), and to the extent that our services are
utilized  by  Europeans,  legal  action  grounded in European privacy laws could
prevent  our  solution  from  succeeding  in  the  European  market.

RISKS  RELATED  TO  OUR  STOCK

OUR OFFICERS, DIRECTORS AND AFFILIATED ENTITIES HAVE SIGNIFICANT CONTROL OVER US
AND  MAY  APPROVE  OR  REJECT  MATTERS  CONTRARY  TO  YOUR  VOTE  OR  INTERESTS.

Our executive officers and directors together with their affiliates beneficially
own,  or  have  rights  to  acquire,  an aggregate of approximately 68.4% of our
outstanding capital stock.  These stockholders, if acting together, will be able
to  significantly  influence all matters requiring approval by our stockholders,
including  the  election  of  directors  and  the approval of mergers or similar
transactions,  even  if  other  stockholders  disagree.  In  particular, Warburg
Pincus  Private  Equity  VIII, L.P. ("Warburg") owns or has the right to acquire
securities  with  voting  power  equivalent  to 52.8% of our outstanding capital
stock.  Furthermore,  certain  actions that we may wish to undertake require the
consent of holders of a majority of our outstanding shares of Series A Preferred
Stock,  voting as a separate class. These actions include authorization and sale
of certain senior securities, certain transactions involving a change of control
of  Evolve,  the  incurrence  of  significant  indebtedness  and  the payment of
dividends.  With  respect  to  these  and  other  matters,  the interests of the
holders  of  our  Series  A Preferred Stock will not necessarily be identical to
those  of  holders  of  our common stock.  For instance, in the event of certain
change  of  control  transactions,  the  holders of Series A Preferred Stock are
entitled  to  payment  of  a  liquidation  preference  prior  to  payment of any
consideration to the holders of our common stock.  This may cause the holders of
Series  A  Preferred  Stock  generally,  and  Warburg in particular, to favor or
oppose a merger or sale of the Company or its assets in circumstances where many
holders of common stock have a contrary desire.  In such an instance, we may not
be  able to pursue a transaction even if it is supported by many or most holders
of  our  common  stock.  Alternatively,  we may pursue a transaction that is not
supported  by,  or  may  be  detrimental  to,  the  holders of our common stock.

THE  SALE  OF  A  SUBSTANTIAL  NUMBER  OF SHARES OF COMMON STOCK COULD CAUSE THE
MARKET  PRICE  OF  OUR  COMMON  STOCK  TO  DECLINE.

Sales  of  a  substantial  number  of  shares  of our common stock in the public
market,  or  the  appearance  that  such  shares  are  available for sale, could
adversely affect the market price for our common stock.  The market price of our
stock  could also decline if one or more of our significant stockholders decided
for  any  reason  to sell substantial amounts of our stock in the public market.
As  of  January  31, 2002, we had 44,729,867 shares of common stock outstanding.
Of  these  shares,  42,347,258 were freely tradable in the public market, either
without restriction or subject, in some cases, only to S-3 or S-8/S-3 prospectus


                                       27
<PAGE>
delivery  requirements,  and,  in  some  cases,  only  to either manner of sale,
volume,  or notice requirements of Rule 144 under the Securities Act of 1933, as
amended.  An  additional 2,382,609 shares will become eligible for sale, subject
only  to the manner of sale requirements of Rule 144, as our right to repurchase
these  shares  lapses over time with the continued employment by Evolve of these
stockholders.  As  of January 31, 2002, we also had 10,479,113 shares subject to
outstanding  options  under  our  stock  option  plans (plus 197,812 options and
warrants issued are outside of any plan), and 6,665,197 shares are available for
future  issuance  under these plans.  We have registered a portion of the shares
of  common  stock subject to outstanding options and reserved for issuance under
our  stock  option  plans  and  1,885,340  remaining  shares of common stock are
reserved for issuance under our 2000 Employee Stock Purchase Plan.  Accordingly,
shares  underlying  vested  options  will  be  eligible for resale in the public
market as soon as they are purchased.  We also have 1,300,000 shares of Series A
Preferred  Stock  outstanding,  which  are currently convertible into 26,000,000
shares  of  common  stock.  As  of  January  31,  2002,  we  also  had  warrants
outstanding to purchase a total of 6,509,167 of our common stock and warrants to
purchase up to 1.3 million shares of Series A Convertible Preferred Stock, which
in  turn  is convertible to up to 26 million shares of common stock.  If all the
warrants  for the Series A Convertible Stock are exercised, an additional common
stock  warrant  for  up  to 6,500,000 shares of our common stock will be issued.

NASDAQ  LISTING  MAY  BE AT RISK AND MAY REQUIRE REVERSE STOCK SPLIT TO MAINTAIN
COMPLIANCE  WITH  LISTING  REQUIREMENTS.

Since  January  2,  2002, we failed to maintain the minimum closing bid price of
$1.00  over  30  consecutive  trading  days  as  required by the Nasdaq National
Market.  In  order  to maintain compliance with the Nasdaq listing requirements,
we may be required to take various measures including raising additional capital
and  effecting  a  reverse split of our common stock.  Certain of such measures,
including  any  reverse  stock split, would require stockholder approval.  If we
are  unable  to  demonstrate  compliance with any Nasdaq requirement, the Nasdaq
staff  may  take  further  action  with  respect to a potential delisting of our
stock.  We  may  appeal  any  such  decision  by  the Nasdaq staff to the Nasdaq
Listing  Qualifications  Panel.

ITEM  3.  QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK

The  following  discusses  our  exposure  to  market  risk related to changes in
foreign  currency  exchange  rates,  interest  rates,  and  equity prices.  This
discussion  contains  forward-looking  statements  that are subject to risks and
uncertainties.  Actual  results could vary materially as a result of a number of
factors  including those set forth in the risk factors section of this document.

FOREIGN  CURRENCY  EXCHANGE  RATE  RISK

To  date, all our product sales have been made in North America and to a smaller
extent,  Europe.  To  the  extent  that  our  international  operations  become
meaningful,  our  financial  results  could be affected by a variety of factors,
including changes in foreign currency exchange rates or weak economic conditions
in  foreign  markets.  The  strengthening  of  the  U.S.  dollar  could make our
products less competitive in foreign markets given that sales are currently made
in  U.S.  dollars.

INTEREST  RATE  RISK

At  December  31,  2001,  we  had  cash,  cash equivalents, restricted cash, and
investments  of  $14.3  million.  Included  in  this  balance  is  a  short-term
investment of $869,000 and $2.9 million in short-term restricted cash.  Declines
in  interest  rates  over  time would reduce our interest income.  Interest rate
fluctuations  would  also  affect  interest paid on our line- of-credit and term
loan  credit  facility.

Funds  in  excess  of  current operating requirements are invested in short-term
investments  principally  consisting  of  commercial paper, government bonds and
money-market  institutions.  Due  to  the  nature  of  our  investments, we have
concluded  that  there is no material market risk exposure at December 31, 2001.
Therefore,  no  quantitative  tabular  disclosures  are  presented.

The  basic  objectives  of  our  investment  program  are  to  ensure:

     -    safety  and  preservation  of  capital;
     -    sufficient  liquidity  to  meet  cash  flow  requirements;
     -    attainment  of  a  consistent market rate of return on invested funds;
          and
     -    avoiding  inappropriate  concentrations  of  investments.


                                       28
<PAGE>
EQUITY  RISK

We  do  not own any marketable equity securities.  Therefore, we are not subject
to  any  direct  equity  price  risk.

PART  II  -  OTHER  INFORMATION

ITEM  1.  LEGAL  PROCEEDINGS

From  time  to  time,  we  may  become involved in litigation relating to claims
arising from the ordinary course of business.  We are defending two claims filed
by  early  customers;  one  an  action  filed  in  the federal district court in
Massachusetts  and  the  other  an  action  filed  in  federal district court in
California.  Both  cases  allege a variety of claims including that the software
and  services  purchased from us did not satisfy certain contractual obligations
and  that  we  engaged  in  practices  that  they  allege  were  unfair  or
misrepresentative.  We have filed motions to dismiss both of these claims.  Both
of  these  claims  are  still  in the early stages of litigation; therefore, not
possible  to  estimate  the  outcome  of  these  contingencies.

In  November  2001,  a  complaint  seeking  class action status was filed in the
United  States  District  Court  for  the  Southern  District  of New York.  The
complaint  is  purportedly  brought  on  behalf of all persons who purchased our
common stock from August 9, 2000, through December 6, 2000.  The complaint names
as  defendants  some  of our former and current officers, and several investment
banking  firms  that  served  as  managing  underwriters  of  our initial public
offering.  Among  other  things,  the  complaint  alleges  liability  under  the
Securities  Act  of 1933 and the Securities Exchange Act of 1934, on the grounds
that the registration statement for our initial public offering did not disclose
that:  (1)  the  underwriters  had  allegedly  agreed  to allow certain of their
customers  to  purchase  shares  in  the offering in exchange for alleged excess
commissions  paid  to  the  underwriters; and (2) the underwriters had allegedly
arranged  for  certain  of  their customers to purchase additional shares in the
aftermarket  at  pre-determined  prices under alleged arrangements to manipulate
the  price  of  the  stock  in  aftermarket  trading.  We are aware that similar
allegations have been made in numerous other lawsuits challenging initial public
offerings  conducted  in  1998, 1999 and 2000.  No specific amount of damages is
claimed  in  the  complaint involving our initial public offering.  We intend to
contest  the  claims  vigorously.  We  are  unable,  at  this time, to determine
whether the outcome of the litigation will have a material impact on our results
of  operations  or  financial  condition  in  any  future  period.

We  believe  that  there  are  no  other claims or actions pending or threatened
against  us,  the  ultimate  disposition  of which would have a material adverse
effect  on  us.

ITEM  2.  CHANGES  IN  SECURITIES  AND  USE  OF  PROCEEDS

COMMON  STOCK  SALE

SERIES  A  PREFERRED  STOCK  FINANCING

We  completed  the  sale  of  Series  A Preferred Stock pursuant to the Purchase
Agreement  (the  "Series  A Preferred Financing") on October 9, 2001.  We issued
the following securities and rights to the investors participating in the Series
A  Preferred  Financing:

     -    an  aggregate  of  1.3  million  shares of Evolve's Series A Preferred
          Stock  at  a  price  of  $10  per  share;
     -    warrants  to  purchase  up  to  an aggregate of 1.3 million additional
          shares  of  Series  A Preferred Stock at a price of $10 per share (the
          "preferred  stock  warrants");
     -    warrants  to  purchase  up  to 6.5 million shares of common stock at a
          price  of  $1.00  per  share  (the  "common  stock  warrants");  and
     -    the  right  to  receive additional common stock warrants to purchase a
          number  of shares of common stock equal to 25% of the number of shares
          of  common  stock  into  which  the shares of Series A Preferred Stock
          issued  upon exercise of the preferred stock warrants are convertible,
          at  the  time  such  preferred  stock  warrants  are  exercised.

We  received  an  aggregate  purchase  price  of $13 million for the 1.3 million
shares  of  Series  A Preferred Stock sold.  If the preferred stock warrants and
the  common  stock  warrants  are exercised in full for cash, we will receive an
additional  $26  million  in  aggregate  proceeds.  We  have  no  plans to issue
additional  shares  of Series A Preferred Stock, other than upon exercise of the
warrants  described  above.  We  have  used  and  intend  to continue to use the
proceeds  from  the  Series  A  Preferred  Financing for general working capital
purposes.


                                       29
<PAGE>
The  issuance  of  the Series A Preferred Stock and the warrants was exempt from
the  registration requirements of the Securities Act pursuant to Section 4(2) of
the  Securities  Act,  and  Regulation promulgated thereunder.  We relied on the
fact  that the securities were offered to a small group of investors without any
public advertisement or solicitation, and on the fact that each of the investors
represented  that it was an "accredited investor" within the meaning of Rule 501
under  the  Securities  Act  and  that  it  was  purchasing  the  securities for
investment  purposes  and not with any present intent to further distribute such
securities.

ITEM  3.  DEFAULTS  UPON  SENIOR  SECURITIES

None.

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

Our  2001  annual  meeting  of  stockholders  was  held  on  November  26,  2001
(the"Annual  Meeting").  The  matters that were voted upon at the annual meeting
and  the  outcome  of  the stockholder vote on each matter are summarized below:

PROPOSAL  I.  Election of directors to hold office until the 2004 Annual Meeting
of  Stockholders  and  until  their  successors  are  elected.

<TABLE>
<CAPTION>
                               WITHHELD
                      FOR      AUTHORITY
                   ----------  ---------
<S>                <C>         <C>
Cary Davis         47,469,286     24,406
Jeffrey M. Drazan  47,466,978     26,714
</TABLE>

As  a  result,  Messrs.  Davis  and  Drazan  were re-elected as directors of the
Company.  In addition, the following directors' terms continued after the annual
meeting:

   Gayle  Crowell
   Judith  Hamilton
   Nancy  Martin,  Ph.D.
   John  R.  Oltman
   Paul  Rochester

PROPOSAL  II.  Approval  of  an  amendment to the Company's Amended and Restated
Certificate of Incorporation (the "Restated Certificate") to increase the number
of  authorized  shares of Common Stock by 90,000,000 shares, from 110,000,000 to
200,000,000  shares.

<TABLE>
<CAPTION>
    FOR     AGAINST  ABSTAIN
----------  -------  -------
<S>         <C>      <C>
47,331,049  160,140    2,503
</TABLE>

PROPOSAL  III.  Approval  of  an amendment to the Restated Certificate to enable
holders  of  Preferred  Stock  to  act  by  written  consent.

<TABLE>
<CAPTION>
    FOR     AGAINST  ABSTAIN
----------  -------  -------
<S>         <C>      <C>
47,434,185   60,780       51
</TABLE>

PROPOSAL  IV.  Approval  of  an amendment to the our 2000 Stock Plan to increase
the  maximum  number  of  shares  of  common  stock authorized under the plan by
10,000,000  shares,  to 16,000,000 shares, exclusive of future annual increases,
and  to  provide  that  the  shares  authorized  for  issuance under the plan be
increased annually by the least of (i) the aggregate number of shares subject to
grants  made  in  the  previous year, (ii) 10,000,000 or (iii) any lesser amount
determined  by  our  Board  of  Directors.

<TABLE>
<CAPTION>
   FOR       AGAINST   ABSTAIN
----------  ---------  -------
<S>         <C>        <C>
46,460,577  1,026,118    5,673
</TABLE>


                                       30
<PAGE>
PROPOSAL  V.  Ratification  of the appointment of PricewaterhouseCoopers LLP for
fiscal  year  2002.

<TABLE>
<CAPTION>
    FOR     AGAINST  ABSTAIN
----------  -------  -------
<S>         <C>      <C>
47,485,477    6,513    1,702
</TABLE>

ITEM  5.  OTHER  INFORMATION

None.

ITEM  6.  EXHIBITS  AND  REPORTS  ON  FORM  8-K

(a)     Exhibits:

EXHIBIT
-------
  NO.
  ---

10.19     Amended  Office  Building  Lease, 1400 65th Street, Emeryville, CA.

(b)  Reports  on  Form  8-K:

     -    On October 24, 2001, we filed a current report on Form 8-K relating to
          the  completion  of a Private Placement of certain securities pursuant
          to  the  Series  A  Preferred  Stock  Purchase  Agreement  dated as of
          September  23,  2001.

     -    On  October  3, 2001, we filed a current report on Form 8-K/A relating
          to a press release announcing that we had entered into an agreement to
          sell  shares  of our Series A Preferred Stock and warrants to purchase
          additional  shares  or  our Series A Preferred Stock and common stock.


SIGNATURE

Pursuant  to  the  requirements  of  the  Securities  Exchange  Act of 1934, the
registrant  has  duly  caused  this  report  to  be  signed on its behalf by the
undersigned,  thereunto  duly  authorized.




Date:  February 14, 2002

                                                /s/ Kenneth J. Bozzini
                                  ----------------------------------------------
                                                Kenneth J. Bozzini
                                  Chief Financial Officer and Vice  President of
                                  Finance (Duly Authorized Officer and Principal
                                  Financial  and  Accounting  Officer)


                                       31
<PAGE>