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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 SEPTEMBER 30, 2001
                                       OR

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

                FOR THE TRANSITION PERIOD FROM __________ TO _________
                        COMMISSION FILE NUMBER: 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 November 12, 2001, was approximately
$6,431,080  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
November  12,  2001,  was  40,830,111.


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<PAGE>
                                     EVOLVE SOFTWARE, INC.

                                           FORM 10-Q

                                       TABLE OF CONTENTS

                                                                          PAGE
                                                                          ----
                          PART I - FINANCIAL INFORMATION


Item 1.   Financial Statements
          Consolidated Condensed Balance Sheets  (unaudited)
          As of September 30, 2001 and June 30, 2001. . . . . . . . . . .   2

          Consolidated Condensed Statement of Operations (unaudited)
          For the Three Months Ended September 30, 2001 and 2000. . . . .   3

          Consolidated Condensed Statement of Cash Flows (unaudited)
          For the Three Months Ended September 30, 2001 and 2000. . . . .   4

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

Item 2.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations . . . . . . . . . . . . . .  12

Item 3.   Quantitative and Qualitative Disclosures About Market Risk. . .  26

                          PART II  -- OTHER INFORMATION

Item 1.   Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . .  27

Item 2.   Changes in Securities and Use of Proceeds . . . . . . . . . . .  27

Item 3.   Defaults Upon Senior Securities . . . . . . . . . . . . . . . .  29

Item 4.   Submissions of Matters to a Vote of Security Holders. . . . . .  29

Item 5.   Other Information . . . . . . . . . . . . . . . . . . . . . . .  29

Item 6.   Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . .  29

Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  29


                                        1
<PAGE>
                         PART I - FINANCIAL INFORMATION

ITEM1.  FINANCIAL  STATEMENTS

<TABLE>
<CAPTION>
                                EVOLVE SOFTWARE, INC.
                        CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (IN THOUSANDS)

                                                                     2001
                                                         ---------------------------
                                                          SEPTEMBER 30,    JUNE 30,
                                                         ---------------  ----------
ASSETS                                                             (unaudited)
<S>                                                      <C>              <C>
Current assets:
    Cash and cash equivalents . . . . . . . . . . . . .  $       10,867   $  19,914
    Short-term investments  . . . . . . . . . . . . . .             861       2,840
    Accounts receivable, net of allowance for doubtful
          accounts $1,275 and $730, respectively. . . .           3,636       6,414
    Prepaid expenses and other current assets . . . . .           2,527       2,454
    Notes receivable from related party . . . . . . . .             175         175
                                                         ---------------  ----------
        Total current assets. . . . . . . . . . . . . .          18,066      31,797

Property and equipment, net . . . . . . . . . . . . . .           9,632      10,481
Deposits and other assets . . . . . . . . . . . . . . .           1,588       1,617
Goodwill and other intangible assets, net . . . . . . .           3,325       3,726
                                                         ---------------  ----------
        Total assets. . . . . . . . . . . . . . . . . .  $       32,611   $  47,621
                                                         ===============  ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable. . . . . . . . . . . . . . . . . .  $        4,250   $   5,670
    Accrued liabilities . . . . . . . . . . . . . . . .           4,943       5,852
    Deferred revenues . . . . . . . . . . . . . . . . .           6,207       8,117
    Capital lease obligations, current portion. . . . .             576         646
    Restructuring accrual, current portion. . . . . . .           1,769       2,208
    Short-term debt . . . . . . . . . . . . . . . . . .           2,376       2,178
                                                         ---------------  ----------
        Total current liabilities . . . . . . . . . . .          20,121      24,671

Capital lease obligations, less current portion . . . .             132         194
Restructuring accrual, less current portion . . . . . .           4,268       4,651
Long-term debt. . . . . . . . . . . . . . . . . . . . .           1,980       2,575
Deferred rent . . . . . . . . . . . . . . . . . . . . .             200         187
                                                         ---------------  ----------
        Total liabilities . . . . . . . . . . . . . . .          26,701      32,278
                                                         ---------------  ----------

Stockholders' equity
    Common stock. . . . . . . . . . . . . . . . . . . .              41          40
    Additional paid-in capital. . . . . . . . . . . . .         248,311     250,485
    Notes receivable from stockholders. . . . . . . . .          (7,567)     (7,795)
    Unearned stock-based compensation . . . . . . . . .          (8,453)    (11,732)
    Accumulated other comprehensive income (loss) . . .             (89)         95
    Accumulated deficit                                        (226,333)   (215,750)
                                                         ---------------  ----------
        Total stockholders' equity. . . . . . . . . . .           5,910      15,343
                                                         ---------------  ----------

        Total liabilities and stockholders' equity. . .  $       32,611   $  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
                                                                                       SEPTEMBER 30,
                                                                                  -----------------------
                                                                                      2001        2000
                                                                                  ------------  ---------
                                                                                         (unaudited)
<S>                                                                               <C>           <C>
Revenues:
    Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $     2,341   $  5,047
    Subscriptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         1,396      1,912
                                                                                  ------------  ---------
        Total revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . .         3,737      6,959
                                                                                  ------------  ---------

Cost of revenues:
    Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         1,415      2,903
    Subscriptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           450      1,051
    Stock based charges . . . . . . . . . . . . . . . . . . . . . . . . . . . .          (135)       744
                                                                                  ------------  ---------
        Total cost of revenues. . . . . . . . . . . . . . . . . . . . . . . . .         1,730      4,698
                                                                                  ------------  ---------

        Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         2,007      2,261

Operating expenses:
    Sales and marketing:
      Other sales and marketing . . . . . . . . . . . . . . . . . . . . . . . .         4,574     11,048
      Stock based charges . . . . . . . . . . . . . . . . . . . . . . . . . . .           (95)     2,620
    Research and development:
      Other research and development. . . . . . . . . . . . . . . . . . . . . .         3,515      3,830
      Stock based charges . . . . . . . . . . . . . . . . . . . . . . . . . . .           157      1,523
    General and administrative:
      Other general and administrative. . . . . . . . . . . . . . . . . . . . .         2,289      2,521
      Stock based charges . . . . . . . . . . . . . . . . . . . . . . . . . . .         1,326      4,063
    Amortization of goodwill and other intangible assets. . . . . . . . . . . .           401      2,726
    Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . .           693          -
                                                                                  ------------  ---------

        Total operating expenses. . . . . . . . . . . . . . . . . . . . . . . .        12,860     28,331

Operating loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (10,853)   (26,070)

Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           270        795
                                                                                  ------------  ---------

Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (10,583)   (25,275)

Beneficial conversion feature of Series I redeemable convertible preferred stock            -     (5,977)
                                                                                  ------------  ---------

Net loss attributable to common stockholders. . . . . . . . . . . . . . . . . .   $   (10,583)  $(31,252)
                                                                                  ============  =========

Net loss per common share -- basic and diluted  . . . . . . . . . . . . . . . .   $     (0.29)  $  (1.50)
                                                                                  ============  =========

Shares used in net loss per common share calculation -- basic and diluted . . .        36,905     20,789
                                                                                  ============  =========


         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)

                                                                                 THREE MONTHS ENDED
                                                                                    SEPTEMBER 30,
                                                                               -----------------------
                                                                                   2001        2000
                                                                               ------------  ---------
                                                                                      (unaudited)
<S>                                                                            <C>           <C>
Cash flows from operating activities:
  Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $   (10,583)  $(25,275)
  Adjustments to reconcile net loss to net cash used in operating activities:
    Loss on disposal of fixed assets. . . . . . . . . . . . . . . . . . . . .            -         19
    Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . .          545          -
    Depreciation and amortization - fixed assets. . . . . . . . . . . . . . .          932        796
    Amortization of goodwill and other intangible assets. . . . . . . . . . .          401      2,726
    Non cash restructuring charges. . . . . . . . . . . . . . . . . . . . . .          103          -
    Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . .            -         75
    Stock-based charges . . . . . . . . . . . . . . . . . . . . . . . . . . .        1,253      8,950
  Changes in assets and liabilities:
    Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .        2,281     (2,643)
    Prepaid expenses and other current assets . . . . . . . . . . . . . . . .          (68)      (867)
    Deposits and other assets . . . . . . . . . . . . . . . . . . . . . . . .           29       (630)
    Accounts payable  . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (1,448)      (389)
    Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .         (895)       588
    Restructuring accrual . . . . . . . . . . . . . . . . . . . . . . . . . .         (822)         -
    Deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .       (1,994)    (1,171)
                                                                               ------------  ---------
NET CASH USED IN OPERATING ACTIVITIES . . . . . . . . . . . . . . . . . . . .      (10,266)   (17,821)
                                                                               ------------  ---------

Cash flows from investing activities:
  Purchase of short-term investments. . . . . . . . . . . . . . . . . . . . .         (521)    (4,938)
  Maturities of short-term investments. . . . . . . . . . . . . . . . . . . .        2,500          -
  Purchases of property and equipment . . . . . . . . . . . . . . . . . . . .         (192)    (3,190)
  Proceeds from sale of property and equipment. . . . . . . . . . . . . . . .            -         13
  Purchases of intangibles  . . . . . . . . . . . . . . . . . . . . . . . . .            -       (700)
                                                                               ------------  ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES . . . . . . . . . . . . .        1,787     (8,815)
                                                                               ------------  ---------

Cash flows from financing activities:
  Payments under capital lease obligations. . . . . . . . . . . . . . . . . .         (132)      (181)
  Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . .         (396)         -
  Proceeds from initial public offering . . . . . . . . . . . . . . . . . . .            -     46,462
  Proceeds from issuance of preferred stock, net of issuance costs. . . . . .            -     12,577
  Proceeds from exercise of common stock options. . . . . . . . . . . . . . .            -        839
  Proceeds from exercise of common stock warrants . . . . . . . . . . . . . .            -        500
  Proceeds from employee stock purchase plan  . . . . . . . . . . . . . . . .           80          -
  Proceeds from payment on note receivable. . . . . . . . . . . . . . . . . .            -         70
  Payments on repurchase of common stock. . . . . . . . . . . . . . . . . . .            -        (60)
                                                                               ------------  ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES . . . . . . . . . . . . .         (448)    60,207
                                                                               ------------  ---------

Effect of exchange rate changes on cash and cash equivalents. . . . . . . . .         (120)         3

Increase (decrease) in cash and cash equivalents. . . . . . . . . . . . . . .       (9,047)    33,568
Cash and cash equivalents at beginning of period. . . . . . . . . . . . . . .       19,914     18,660
                                                                               ------------  ---------
Cash and cash equivalents at end of period. . . . . . . . . . . . . . . . . .  $    10,867   $ 52,228
                                                                               ============  =========


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


                                        4
<PAGE>

                              EVOLVE SOFTWARE, INC.
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE  1.  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES

THE  COMPANY

Evolve  Software,  Inc. 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
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.

BASIS  OF  PRESENTATION

The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and with the instructions to Form 10-Q and Articles 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-month  period ended September 30,
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  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.

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:

     -    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.


                                        5
<PAGE>
Historically,  the  Company  did  not have vendor specific objective evidence of
fair  value  for  services  specified  in  certain software arrangements, as the
services  were  never  sold  separately.  Accordingly,  the  remaining  software
revenue  allocated to such software licenses and services was recognized ratably
on  a  straight-line  basis  over  the  period  during  which  the services were
provided,  which was generally between six and nine months.  In October 2000 the
Company 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 or APB No. 29,
"Accounting  for  Nonmonetary  Transactions,"  and Emerging Issues Task Force or
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 $434,000 and $695,905 for the fiscal quarters ended
September  30,  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.

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):

                                           THREE MONTHS ENDED
                                             SEPTEMBER 30,
                                         ----------------------
                                            2001        2000
                                         ----------  ----------
Net loss                                 $ (10,583)  $ (25,275)
Foreign currency translation adjustment       (184)         (3)
                                         ----------  ----------
Comprehensive loss                       $ (10,767)  $ (25,278)
                                         ==========  ==========


                                        6
<PAGE>
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.

RECENT  ACCOUNTING  PRONOUNCEMENTS

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 currently assessing SFAS No. 141 and 142 and has not determined the impact on
Evolve's  consolidated  financial  statements.

In  August  2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," which is effective for fiscal years beginning after June 15, 2002.
This  statement  addresses  financial  accounting  and reporting for obligations
associated  with the retirement of tangible long-lived assets and the associated
asset  retirement  costs.  SFAS  No.  143 requires, among other things, that the
retirement  obligations  be  recognized  when they are incurred and displayed as
liabilities  on  the balance sheet.  In addition, the asset's retirement cost is
to  be  capitalized  as  part  of  the  asset's carrying amount and subsequently
allocated  to  expense  over the asset's useful life.  The Company believes that
the adoption of SFAS No. 143 will not have a significant impact on its 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,  the  Statement  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 superseded SFAS No. 121and 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 Company
subsequently  issued  663,495 shares to Vivant in September 2001 pursuant to the
terms  of  the  acquisition agreement.  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.  The results of Vivant's operations have been included
in  the  consolidated  financial  statements  since  the  date  of  acquisition.


                                        7
<PAGE>
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).

                                        THREE MONTHS ENDED
                                           SEPTEMBER 30,
                                      ----------------------
                                         2001        2000
                                      ----------  ----------
Revenues                              $   3,737   $   6,959
Net loss                                (10,583)    (34,890)
                                      ----------  ----------
Basic and diluted net loss per share  $   (0.29)  $   (1.52)
                                      ==========  ==========

NOTE  3.  STOCK-BASED  CHARGES

The  Company  incurred  stock-based compensation 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 Company's IPO date.  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 September 30, 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 $1.3 million
and  $9.0  million  for the three months ended September 30, 2001, and September
30,  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 where those officers had purchased restricted stock with full
recourse  notes,  the  Company agreed as part of their termination settlement 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 September 30, 2001.  The financial impact of
these  arrangements  is  included within stock-based compensation expense, which
has been allocated to the appropriate functional categories within the Statement
of  Operations.

NOTE  4.  LONG-TERM  DEBT

In  January  2001  the  Company  entered  into  a credit arrangement providing a
line-of-credit of $7.5 million and a $7.5 million term loan credit facility with
interest  accruing  at the bank's prime rate plus 0.75% and 1.00%, respectively.
At  September  30,  2001,  these rates were 7.25% and 7.5%, respectively.  As of
September  30,  2001,  the  Company  had  utilized $4.8 million of the term loan
credit  facility and had repaid $396,000.  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.  The line-of-credit also includes a $5.0
million  sublimit to secure commercial and/or standby letters-of-credit of which
$2.9  million  has  been  utilized  to  support  letters-of-credit issued to the
landlord  of  the  Company's  Emeryville  facility.  Any  advances  on  the
line-of-credit  mature  one  year  from  the  loan  documents  with interest due
monthly.  Advances  on the term loan credit facility are due twenty-eight months
from  the advance with interest-only payments for the first four months and then
equal  payments  of  interest  and  principal  amortized  over  the  remaining
twenty-four  months.  The  Company  is  required  to  maintain certain financial
ratios  as  part  of  the  loan  covenants.


                                        8
<PAGE>
In  September  2001,  the  Company entered into a commitment letter to amend the
Loan  and Security Agreement, and thereafter signed an amended and restated Loan
and  Security  Agreement  on November 13, 2001, 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.  According  to the bank, the Company had been in violation of
bank  covenants  to  maintain  minimum  revenue  levels  for the months of April
through  September 2001.  In connection with the loan amendment, the bank waived
these  covenant  violations  on  September  26, 2001, and approved new financial
covenants  for the periods commencing October 1, 2001.  Under the new covenants,
the  Company  will  be  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  (this  milestone  was  met).

NOTE  5.  CONTINGENCIES

From  time  to  time,  the Company may become involved in litigation relating to
claims  arising  from  the ordinary course of business.  For example, one of the
Company's  early  customers  filed  an  action  in the federal district court in
Massachusetts  and  several  other  customers  filed  actions in either state or
federal  court  in  California, each alleging a variety of claims including that
the  software  and  services  purchased from the Company did not satisfy certain
contractual  obligations or, in two cases, that the Company engaged in practices
that they allege were unfair or misrepresentative.  Certain of these claims were
filed  as  counterclaims  to  actions  instituted  by  the  Company  to  collect
outstanding  receivables.  All  of these claims are still in the early stages of
litigation,  and it is, 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 the
Company's  common  stock  from  August  4,  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.  As of the date of this report, neither the
Company  nor the individual defendants named had been served with the complaint.
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  our  results  of  operations or financial condition in any
future  period.

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  September  30,  2001,  the  Company  recorded  a
restructuring charge of $693,000 related to actions taken to reduce costs and to
strengthen  the  Company's  position to execute its strategy.  The restructuring
charge  included  $590,000  of  severance related costs, which resulted from the
involuntary  termination  of  49  employees  or  19% of the Company's workforce.
These  employees were primarily in the Company's United States operations.  As a
result  of  the  headcount  reduction,  the  Company  recorded  $103,000 for the
disposal  of  excess  computer hardware and telecommunications equipment.  These
charges  were in addition to the $9.7 million in restructuring charges that were
recorded  in  the  quarter  ended  June  30,  2001.  A  rollforward  of  the
restructuring-related  liabilities  follows.


                                        9
<PAGE>
<TABLE>
<CAPTION>
(in thousands)                                SEVERANCE     ACCRUAL OF       FIXED
                                             AND RELATED       LEASE         ASSET
                                               CHARGES      COMMITMENTS    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

Short-term                                  $        363   $      1,406   $        -   $ 1,769
Long-term                                   $          -   $      4,268   $        -   $ 4,268
</TABLE>

NOTE  7.  NET  LOSS  PER  SHARE

Basic  and  diluted  net  loss  per share is 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:

                                                 THREE MONTHS ENDED
                                                    SEPTEMBER 30,
                                                --------------------
                                                   2001       2000
                                                ---------  ---------
Numerator:
  Net loss                                      $(10,583)  $(25,275)
  Beneficial conversion feature of Series I
    redeemable convertible preferred stock             -     (5,977)
                                                ---------  ---------
  Net loss attributable to common stockholders  $(10,583)  $(31,252)
                                                =========  =========

Denominator:
  Weighted average common shares                  40,052     26,244
  Weighted average unvested common shares
    subject to repurchase                         (3,147)    (5,455)
  Shares used in computing basic and diluted
                                                ---------  ---------
    net loss per share                            36,905     20,789
                                                =========  =========

At  September  30,  2001  and  2000, options to purchase 4,762,007 and 1,702,227
shares  of  common stock were outstanding with a weighted-average exercise price
of  $3.51  and  $6.20,  respectively.  These  common stock equivalents have been
excluded  from  the computation of diluted net loss per share because the effect
would  have  been  anti-dilutive.  The  weighted-average purchase price of stock
subject  to  repurchase  was  $2.29 and $2.22 as of September 30, 2001 and 2000,
respectively.

NOTE  8.  SUBSEQUENT  EVENTS

On  September  23,  2001, the Company 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 (convertible into
common  stock  at a rate of $.50 per share) for total proceeds of $13 million as


                                       10
<PAGE>
well  as  warrants  to  purchase 6.5 million shares of common stock at $1.00 per
share.  In  addition,  the  Company  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 occurred on October 9,
2001.

In October 2001 the Company negotiated with its landlord for an amendment to the
original  Emeryville  lease  agreement  to  relieve the Company from its payment
obligations for the excess premises and increase the payment obligations for the
occupied  facilities.  As  a  result  of this agreement, the Company anticipates
reversing  approximately  $2.1  million  of  the  total  $6.4 million facilities
restructuring  accrual  recorded  in  the  quarter  ended  June  30,  2001.

Since  September  30,  2001,  there  have  been several changes in the Company's
executive  management  team.  John  P. Bantleman, the Company's former President
and  Chief  Executive  Officer,  James  J.  Bozzini,  the Company's former Chief
Operating  Officer,  and  Joseph  A.  Fuca, the Company's former Vice President,
North  American  Sales,  all  left  the  Company  in  October 2001; David Hsieh,
formerly  Vice  President,  Marketing,  left  the  Company in November 2001.  In
October  2001,  the  Company  appointed Lin Johnstone as Interim Chief Executive
Officer, and announced that it had initiated an executive search for a permanent
Chief  Executive  Officer.

In  November  2001,  the  Company  initiated  a  workforce reduction intended to
further  reduce  operating  expenses and to consolidate the Company's employment
focus  to North America.  Associated with this restructuring, the Company closed
its  India  development  center.  The  Company's  worldwide  headcount  will  be
approximately  140  employees  after  the  reduction.


                                       11
<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  may contain 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 anticipated costs and expenses.  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 integrated Internet-based strategic workforce
optimization  software  for  automating people-driven service organizations like
professional  services firms and corporate information technology ("IT") groups.
Our  Evolve  4 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 Strategic Workforce Optimization 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 82,000 professionals.  Our customers
include  professional  services  firms such as EDS and Icon Media Lab, high tech
services  organizations  at  companies  such  as  Sun  Microsystems,  Novell and
Autodesk  and  Corporate  IT  organizations  in companies such as CSFBdirect 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  September  30,  2001,  was  $226.3  million.

Beginning  in  the  fourth  quarter  of  fiscal  2001,  in  response  to  market
conditions,  we  reduced  our  workforce, restructured our organization and took
other  measures  to  reduce  operating expenses.  As a result, our headcount was
reduced  to  201  employees  as  of September 30, 2001, from 365 employees as of
March  31,  2001.

In  August  2000  we completed an initial public offering of 5,750,000 shares of
our  common  stock, resulting in proceeds of approximately $46.5 million, net of
offering  costs.

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 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 occurred on October 9,
2001.


                                       12
<PAGE>
RESULTS  OF  OPERATIONS

REVENUES

Total  revenues were $3.7 million for the three months ended September 30, 2001,
compared  with  revenues  of  $7.0  million  for  the  comparable  2000  period,
representing  a 46% decrease in total revenues.  For the quarter ended September
30,  2001,  sales  to two customers accounted for 37% and 22% of total revenues.
For  the  quarter  ended September 30, 2000, sales to one customer accounted for
11%  of  total  revenues.

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.  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  revenue as either Solutions revenue or Subscriptions revenue.
Solutions  revenue  consists principally of software licenses and implementation
services while Subscriptions revenue consists principally of application service
provider ("ASP") fees and maintenance subscriptions.  For the three months ended
September  30,  2001,  Solutions  revenues  and  Subscriptions revenue were $2.3
million,  or  63% of total revenues, and $1.4 million, or 37% of total revenues,
respectively.  For the three months ended September 30, 2000, Solutions revenues
and Subscriptions revenues were $5.0 million, or 73% of total revenues, and $1.9
million,  or  27%  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 also includes hosting
fees  required  to  service  our  ASP  customers.

Total cost of revenues, excluding stock-based compensation, was $1.9 million for
the  three  months  ended September 30, 2001, compared with $4.0 million for the
three  months  ended  September 30, 2000, representing a 53% decrease in cost of
revenues.  As  a percentage of total revenues, total cost of revenues, excluding
stock-based  compensation,  was 50% and 57% for the quarters ended September 30,
2001  and  2000,  respectively.

Cost of Solutions revenues, excluding stock-based compensation, was $1.4 million
and  the  cost of Subscriptions revenues was $450,000 for the three months ended
September 30, 2001.  Cost of Solutions revenues was $2.9 million and the cost of
Subscriptions  revenues  was  $1.1  million  for the quarter ended September 30,
2000.  As a percentage of Solutions revenues, cost of Solutions revenues was 60%
and  58% for the quarters ended September 30, 2001 and 2000, respectively.  As a
percentage of Subscriptions revenues, cost of Subscriptions revenues was 32% and
55%  for  the  quarters  ended  September  30,  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 78%
from  September  30,  2000,  to  September  30,  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.

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 59% to $4.6 million


                                       13
<PAGE>
for  the  quarter  ended  September 30, 2001, from $11.0 million for the quarter
ended September 30, 2000.  The decrease in sales and marketing expenses resulted
primarily  from significant workforce reductions implemented during the quarters
ended  June  30,  2001,  and September 30, 2001.  The number of employees in our
sales  and  marketing  organization decreased by 49% from September 30, 2000, to
September  30,  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 September 30, 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  8%  to  $3.5 million for the three months
ended September 30, 2001, from $3.8 million for the three months ended September
30,  2000.  The  decrease in research and development expenses related primarily
to  a  decreased reliance on third-party consultants that we previously utilized
to  accelerate  the delivery of Evolve 4 and other development projects.  During
the  quarter  ended  March  31, 2001, we opened a software development center in
India  that became fully operational during the quarter ended June 30, 2001.  As
a  result  of  the  India operation, the number of employees in our research and
development  organization increased by 30% from September 30, 2000, to September
30, 2001.  Because of the lower costs of operating in India, the additional cost
of  India  was offset by the decline in third-party consultants.  We expect that
the  absolute  dollar  amount  of  research  and  development  expenses will not
increase  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  9%  to  $2.3 million for the three months
ended September 30, 2001, from $2.5 million for the three months ended September
30,  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  45%  from  September  30,  2000,  to  September  30,  2001.

We  increased  our  bad  debt  allowance  by  $545,000  during the quarter ended
September  30,  2001.  This  increase  resulted from the impact of the worsening
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 arrangement and, in the face of the weakening
economy,  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.

AMORTIZATION  OF  STOCK-BASED  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  and  as  a  result of amending certain
stockholder  loans  and  accelerated  vesting  rights  granted  to  terminated
executives.  Based  on the remaining balances at September 30, 2001, our results
from  operations  will  include  stock-based compensation expense, at a minimum,
through  2004.  We recorded stock-based charges of $1.3 million and $9.0 million
for  the  three  months  ended  September  30,  2001,  and  September  30, 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  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.  Amortization of
stock-based  compensation  consisted  of  the  following  (in  thousands):


                                       14
<PAGE>
                               THREE MONTHS ENDED
                                  SEPTEMBER 30,
                               ------------------
                                 2001      2000
                               --------  --------
Cost of revenues:
  Solutions                    $  (135)  $   744
Operating expenses:
  Sales and marketing              (95)    2,620
  Research and development         157     1,523
  General and administrative     1,326     4,063
                               --------  --------
Total                          $ 1,253   $ 8,950
                               ========  ========

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, amortization
of  goodwill  and  other  intangible assets declined to $401,000 for the quarter
ended September 30, 2001, from $2.7 million for the three months ended September
30,  2000.  We  amortized  goodwill and other intangible assets over periods not
exceeding  thirty-six  months.

RESTRUCTURING  COSTS.  In  August  2001  we  continued the cost control measures
commenced  in  April 2001 to streamline operations and reduce costs, and further
reduced  our headcount by 49 employees.  As a result of the workforce reduction,
we  recorded a charge of $693,000, which consisted of severance related costs of
$590,000  and  a  write-off  of  excess computer hardware and telecommunications
equipment,  related  to  the  workforce  reduction,  of  $103,000.

OTHER INCOME, NET.  Other income, net was $270,000 and $795,000 at September 30,
2001 and 2000, respectively.  The 66% decrease resulted primarily from a decline
in  our  cash  balances  and  bank  interest  rates which resulted in a $626,000
interest  income reduction.  The decline in interest income was partially offset
by  a $121,000 increase in foreign exchange translation gain resulting primarily
from  the  strengthening  of the British pound against the United States dollar.

BENEFICIAL CONVERSION OF PREFERRED STOCK.  We recorded a dividend charge of $6.0
million  for  the  quarter  ended September 30, 2000, in respect of a beneficial
conversion feature associated with the sale of approximately 2,000,000 shares of
our  Series  I  Preferred  Stock  in  fiscal  2001.  The  deemed  fair value for
accounting  purposes  was  $9.00  per  share.

LIQUIDITY  AND  CAPITAL  RESOURCES

For  the quarter ended September 30, 2001, net cash used in operating activities
was  $10.3 million resulting principally from a net loss of $10.6 million offset
by  amortization  and  depreciation of $1.5 million, stock-based charges of $1.3
million  and  a net decrease in assets and liabilities of $2.9 million.  For the
quarter  ended  September  30,  2000,  net cash used in operating activities was
$17.8  million  resulting principally from a net loss of $25.3 million offset by
amortization  and  depreciation of  $3.5 million and stock-based charges of $9.0
million  and  a  net  decrease  in  assets  and  liabilities  of  $5.0  million.

Net  cash  provided by investing activities for the three months ended September
30,  2001,  was $1.8 million compared with net cash used by investing activities
of  $8.8 million for the same period in fiscal 2000.  Cash provided by investing
activities  for  the  three  months ended September 30, 2001, resulted primarily
from  the net sale of short-term investments of $2.5 million partially offset by
the  purchase  of  property  and  equipment of $192,000.  Cash used by investing
activities  for  the  three  months ended September 30, 2000, resulted primarily
from  the  purchase  of  $4.9 million of short-term investments and purchases of
property  and  equipment  of  $3.2  million.

Net  cash  used in financing activities for the three months ended September 30,
2001,  was  $448,000  compared with net cash provided by financing activities of
$60  million  for the same prior year period.  Cash used in financing activities
for  the three months ended September 30, 2001, resulted from principal payments


                                       15
<PAGE>
on  our  bank  credit  facility  of  $396,000  and  payments  of  capital  lease
obligations  of  $132,000  partially  offset by proceeds from our employee stock
purchase  plan  of  $80,000.  Net  cash provided by financing activities for the
three  months  ended  September  30,  2000,  resulted  principally  from the net
proceeds  of  our  initial  public  offering  of $46.5 million and preferred and
common  stock  issuances  of  $13.9  million.

At  September  30,  2001, we had cash, cash equivalents and investments of $11.7
million.  We  believe  that  our current cash and investment balances, cash flow
from  operations  and funds from our sale of Series A Preferred Stock in October
2001  will  be  sufficient  to  meet our working capital and capital expenditure
requirements  for  at  least  the  next  twelve  months.

In  January 2001 we entered into a credit arrangement providing a line-of-credit
of  $7.5  million  and  a  $7.5  million term loan credit facility with interest
accruing  at  the  rate  of  the  bank's  prime  rate  plus  0.75%  and  1.00%,
respectively.  At  September  30,  2001,  these  rates  were  7.25%  and  7.5%,
respectively.  As  of  September  30,  2001, we had utilized $4.8 million of the
term  loan  credit  facility  and  had  repaid $396,000.  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.  The  line-of-credit also
includes  a  $5.0  million  sublimit  to  secure  commercial  and/or  standby
letters-of-credit  of  which  $2.9  million  has  been  utilized  to  support
letters-of-credit  issued  to  the  landlord  of  our  Emeryville facility.  Any
advances  on  the  line-of-credit  mature  one year from the loan documents with
interest  due  monthly.  Advances  on  the  term  loan  credit  facility are due
twenty-eight  months  from the advance with interest only payments for the first
four months and then equal payments of interest and principal amortized over the
remaining  twenty-four  months.  We  are  required to maintain certain financial
ratios  as  part  of  the  loan  covenants.

In  September  2001,  we  entered into a commitment letter to amend the Loan and
Security  Agreement,  and  thereafter  signed  an  amended and restated Loan and
Security  Agreement  on  November  13,  2001,  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.  According  to  the  bank,  we  had been in violation of bank
covenants  to  maintain  minimum  revenue levels for the months of April through
September  2001.  In  connection  with the loan amendment, the bank waived these
covenant  violations on September 26, 2001, and approved new financial covenants
for the periods commencing October 1, 2001.  Under the new covenants, we will be
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 equal to 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 (this
milestone  was  met).

FACTORS  THAT  MAY  AFFECT  FUTURE  RESULTS  OF  OPERATIONS

OUR  BUSINESS IS DIFFICULT TO EVALUATE BECAUSE OUR OPERATING HISTORY IS LIMITED.

It  is  difficult to evaluate our business and our prospects because our revenue
and  income  potential are unproven.  We commenced recognizing sales revenues in
March  of  1999.  Because  of our limited operating history, there may not be an
adequate  basis  for  forecasts  of  future  operating results, and we have only
limited  insight  into the trends that may emerge in our business and affect our
financial  performance.

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
September  30,  2001,  we  had  an  accumulated  deficit of approximately $226.3
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 have
experienced  a  sequential  quarterly  decline in revenue for the quarter ending
September 30, 2001, and may experience a further decline in the current quarter.
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.


                                       16
<PAGE>
OUR FUTURE OPERATING RESULTS MAY NOT FOLLOW PAST TRENDS 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.  Although  our operating results have
generally  improved  from  year to year in the recent past, our future operating
results  may not follow past trends.  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;
     -    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 MAY NEED SUBSTANTIAL 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 substantial amounts of capital to fund our business operations.  The
rate  at  which  our  capital  is utilized is affected 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 flow from
operations  and  expect  to  experience  significant  negative  cash  flow  from
operations for the foreseeable future.  In September 2001 we signed a definitive
agreement  for a private placement of our Series A Preferred Stock, which closed
on  October  9,  2001, and resulted in proceeds of $13 million.  This financing,
combined  with  the  cost  reductions we are undertaking and our existing credit
facilities,  is  expected  to  be  sufficient  to  meet  our  working  capital
requirements  through  the  end  of September 30, 2002.  However, we may require
additional  capital  prior  to  that time 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 reduce our operating expenses as rapidly and as
          extensively  as  we hope. For instance, we may discover that we cannot
          reduce our employee headcount as rapidly as we would like in the event
          that we are unable to secure commitments from third parties to provide
          integration and support services to our customers in lieu of providing
          these  services  ourselves.
     -    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.

Accordingly,  we may require or seek to raise additional capital during the 2002
or  2003  fiscal  years.  We cannot be certain that additional financing will be
available  on  favorable  terms,  if  at  all.


                                       17
<PAGE>
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 cannot
predict  whether  they  will be exercised.  We have not commenced any efforts to
secure  additional  financing.

Further,  the  additional  shares  of our capital stock we may issue in any such
financings  may  result in additional dilution, which may be substantial.  If we
need  additional  funds and cannot raise them on acceptable terms, we may not be
able  to  continue  our  operations  at  the  current  level  or  at  all.

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.  For instance, we have shared with some of our
customers  our  internal  product  roadmap  that  includes  descriptions  of new
functional  enhancements such as improved time and expense management for future
releases  of our software.  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.

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 recently 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 discussed above, a substantial portion of our early customers were e-business
consultancies focusing on Web development and e-commerce integration.  As public
valuations  for  many  such  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  201  as  of  September  30,  2001.


                                       18
<PAGE>
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  and  service  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.

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  recently  initiated  searches  for  several  executive  officers including a
permanent  Chief  Executive  Officer  and  a Vice President of Engineering.  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.


                                       19
<PAGE>
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  REDUCE OUR OPERATING EXPENDITURES AS AGGRESSIVELY AS
PLANNED  AND  WE  MAY  NEED  TO  IMPLEMENT  ADDITIONAL RESTRUCTURING ACTIVITIES.

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 July 1, 2000, through September 30, 2001, we
reduced  our employee headcount by 182 persons, with reductions in virtually all
areas  of operations.  We expect that our workforce reductions and other expense
containment  measures  will allow us to continue operations into the foreseeable
future.

In order to achieve operating profitability, we will need to maintain these cost
savings  in  future  quarters,  without  adversely affecting our revenue growth.
Numerous  factors  could  impede  our  ability  to  further manage our 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 fails to meet our current expectations, 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.


                                       20
<PAGE>
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.  Our  success in
attracting  and  retaining customers for our Evolve application service provider
("ASP") offering and convincing them to increase their reliance on this solution
depends  on  our  ability  to  offer  customers  reliable, secure and continuous
service.  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,  California  has  recently been experiencing electric power supply
shortages that has resulted in intermittent loss of power in the form of rolling
blackouts.  While  neither  we nor our third-party Internet service providers or
communications  services  providers  have experienced any power failures to date
that  have  prevented  us  from  continuing  our  operations,  the recurrence of
blackouts  may  affect  our  ability  to  operate  our  business.

Finally,  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 prospective and current customers
and  could  tarnish  our  reputation.

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 Peoplesoft, Siebel and SAP.  In
addition,  we  may, in the future, face competition from providers of enterprise
application  software  or  electronic  marketplaces.  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.  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


                                       21
<PAGE>
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  a substantial 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.

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,


                                       22
<PAGE>
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
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 substantially 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.


                                       23
<PAGE>
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:

     -    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, or,
despite  our  efforts to keep such personal information secure, this information
may  be  delivered  unintentionally  to  inappropriate  third-parties  such  as
recruiters.  Enterprise  applications  like  Evolve  have  always  run on secure
company  intranets.  The  information  contained  in  Evolve  databases  will be
exposed  to  the  unpredictable  security  of  the  Internet,  which  may create
unforeseen  liabilities  for  us.  Evolve is currently targeted primarily to the
North  American  market, but 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  ASP service from succeeding in the
European  market.


                                       24
<PAGE>
POTENTIAL  IMPOSITION  OF  GOVERNMENTAL  REGULATION  OR  TAXATION  ON ELECTRONIC
COMMERCE  COULD  LIMIT  OUR  GROWTH.

The  adoption of new laws or the adaptation of existing laws to the Internet may
decrease the growth in the use of the Internet, which could in turn decrease the
demand  for our solutions, increase our cost of doing business or otherwise have
a  material  adverse  impact on our business.  Few laws or regulations currently
directly  apply  to  access commerce on the Internet.  Federal, state, local and
foreign  governments  are  considering  a  number  of legislative and regulatory
proposals  relating  to  Internet  commerce.  As  a  result, a number of laws or
regulations  may  be adopted regarding Internet user privacy, taxation, pricing,
quality  of  products  and  services  and  intellectual property ownership.  How
existing  laws  will  be  applied  to  the  Internet  in  areas such as property
ownership,  copyright, trademark, trade secret and defamation is uncertain.  The
recent  growth  of  Internet commerce has been attributed by some to the lack of
sales  and  value-added taxes on interstate sales of goods and services over the
Internet.  Numerous  state  and  local  authorities  have  expressed a desire to
impose  such  taxes on sales to businesses in their jurisdictions.  The Internet
Tax  Freedom Act of 1998 prevents imposition of such taxes through October 2001.
If  the  federal  moratorium  on  state and local taxes on Internet sales is not
renewed,  or  if  it  is  terminated  before  its expiration, sales of goods and
services over the Internet could be subject to multiple overlapping tax schemes,
which  could  substantially  hinder  the  growth  of  Internet-based  commerce.

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 57.5% of our
outstanding  common 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 55.0% 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 the transaction in question even if it is supported by many or
most  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  October  31, 2001, we had 40,830,111 shares of common stock outstanding.
Of  these  shares,  35,568,545 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
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 3,044,817 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.  The  remaining  2,216,749  shares  that  were  outstanding  as of
October  31,  2001,  will  be freely tradable, subject only to Form S-3 delivery
requirements and possibly restrictions under Rule 144, upon the effectiveness of
the  Form  S-3  that  was  filed  in September 2001, amended in October 2001 and
expected  to  be  amended  again in November 2001 (as will an as-yet unspecified
number  of  shares  that  are  required to be issued as of the date the Form S-3
becomes  effective).  As  of  October  31,  2001,  we  also had 4,941,832 shares
subject  to  outstanding  options  under  our  stock  option plans (plus 215,000


                                       25
<PAGE>
options  and  warrants  issued  outside  of  any plan), and 2,590,029 shares are
available  for future issuance under these plans.  We have registered 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.  As of October 31, 2001, we also had
warrants  outstanding to purchase a total of 6,509,167 of our common stock and a
warrant  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.

We failed to maintain the minimum closing bid price of $1.00 over 30 consecutive
trading  days  as  required by the Nasdaq National Market.  Nasdaq has suspended
this  minimum bid price requirement through January 2, 2002.  If the minimum bid
price  requirement  is  reinstated  after  that  date  and  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
prospectus.

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  September  30,  2001, we had cash, cash equivalents and investments of $11.7
million.  Included  in  this  balance  is  a  short-term investment of $861,000.
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 September 30, 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.

EQUITY  RISK

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


                                       26
<PAGE>
                           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.  For example, one of our early
customers  filed  an  action  in the federal district court in Massachusetts and
several  other  customers  filed  actions  in  either  state or federal court in
California,  each  alleging  a variety of claims including that the software and
services  purchased  from us did not satisfy certain contractual obligations or,
in  two  cases,  that  we  engaged  in practices that they allege were unfair or
misrepresentative.  Certain  of  these  claims  were  filed  as counterclaims to
actions  instituted  by  us  to  collect  outstanding receivables.  All of these
claims  are  still  in the early stages of litigation, and it is, 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 4, 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.  As of the date of this report, neither the Company nor the individual
defendants  named  had  been served with the complaint.  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

On  September  27,  2001,  we  issued and sold 663,495 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.  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.

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")
     -    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  intend  to  use  the proceeds from the Series A
Preferred  Financing  for  general  working  capital  purposes.


                                       27
<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.

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 we incur 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.  We 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  our  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, we 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
     -    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  remains 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  remains  outstanding
     -    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.


                                       28
<PAGE>
Common  Stock  Warrants.  The  common stock warrants issued to the investors are
exercisable  for  up to 6.5 million shares of common stock, and our 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
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

ITEM  3.  DEFAULTS  UPON  SENIOR  SECURITIES

None.

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

Not  applicable.

ITEM  5.  OTHER  INFORMATION

None.

ITEM  6.  EXHIBITS  AND  REPORTS  ON  FORM  8-K

(a)  Exhibits:

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

10.18  Loan Amendment Agreement, dated November 13, 2001, between Registrant and
Imperial  Bank.

(b)  Reports  on  Form  8-K:

     -    On September 27, 2001, we filed a current report on Form 8-K regarding
          the  issued  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  of  its Series A Preferred Stock and
          Common  Stock.

     -    On  July  17,  2001, we filed a Current Report on Form 8-K relating to
          the  Registrant's  Asset  Acquisition  of  Vivant  Corporation.




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:  November  14,  2001         /s/         KENNETH  J.  BOZZINI
                                  ----------------------------------------------
                                                Kenneth J. Bozzini
                                  Chief Financial Officer and Vice President of
                                  Finance (Duly Authorized Officer and Principal
                                  Financial  and  Accounting  Officer)

                                       29
<PAGE>